On March 27 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law. The $2.2 trillion stimulus package has provisions that help both individuals and businesses struggling through the COVID-19 pandemic. The following is a summary of the Act’s provisions for both individuals and businesses that should provide insight into the different programs you may find helpful.
- INDIVIDUAL PROVISIONS: The Act provides many provisions to help eligible individuals, including:
Recovery Rebates: If you are a U.S. resident with adjusted gross income up to $75,000 ($150,000 married), not a dependent of another taxpayer, and have a work eligible social security number, you are eligible for the full $1,200 ($2,400 married) rebate. In addition, you are eligible for an additional $500 per child. The rebate amount is reduced by $5 for each $100 that your income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
Access to Retirement Plans: You can withdraw as much as $100,000 from your individual retirement accounts without penalty through the end of 2020 if you or your spouse are diagnosed with COVID-19 or if the pandemic has hurt your finances through layoffs, reduced hours, or lack of child care. Funds would be treated as a tax-exempt rollover contribution if you repay the funds in the next 3 years. If funds aren’t repaid, they would be taxed to you as income over 3 years. You may also be eligible to receive loans up to $100,000 from your retirement accounts within 180 days from the Act’s passage. In addition, you may be eligible to suspend your required minimum distributions for certain qualifying defined contribution plans and IRAs.
Unemployment Insurance Expansion: In addition to normal unemployment benefit circumstances, if you are self-employed or an independent contractor unable to work due to COVID-19, you will now be eligible to apply for unemployment benefits. The federal government has included an additional $600 per week for up to 4 months if you are receiving unemployment insurance through your state. You will also be eligible for an additional 13 weeks of unemployment benefits through the end of 2020 if you remain unemployed after the expiration of state unemployment benefits. You may also be eligible for a pro-rata unemployment benefit if your hours have been reduced by your employer.
Charitable Contribution Deduction: As an individual, you will receive a permanent $300 above-the-line charitable contribution allowance, even if you take the standard deduction and do not itemize on your income tax returns. In addition, the limit on individual charitable deductions has been suspended for 2020 and will be limited to 60% of your adjusted gross income through 2025. As a corporation, your charitable deduction limit for 2020 has been increased from 10% of taxable income to 25%.
Delayed Tax Filing Deadline: Your 2019 federal income tax filing deadline has been moved to July 15, 2020. Any of your individual installment payments and corporate estimated tax payments currently due after the Act’s enactment are delayed until October 15, 2020.
Relief for Federal Student Loan Borrowers: If you have a federal student loan, you are entitled to deferred loan payments, principal, and interest through September 30, 2020 without penalty.
Credit Protection: If you and any lender/creditor agree to an account forbearance or modified payments, they must report your account as “current” to any credit reporting agency for at least 120 days from the end of the national emergency declaration related to COVID-19.
- BUSINESS PROVISIONS: The Act provides many provisions to help eligible employers, including:
SBA 7(a) Paycheck Protection Loan Program: Most employers with fewer than 500 employees will be eligible to apply for ten year, low interest (not more than 4%) forgivable loans in an amount up to 2.5 months of your average payroll expenses. The loans will be forgiven, without causing income inclusion for forgiveness of indebtedness, to the extent the loan proceeds are used for qualified payroll, rent, mortgage interest, and utility expenses. The forgiveness of the loan is conditioned upon the maintaining employment levels for a period of time following the origination of the loan.
Expanded EIDL Grants and Advances: You may be eligible for access to Economic Injury Disaster Loans (EIDL), even as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31, 2020). For any loan you apply for in 2020 for COVID-19 related reasons, the SBA must waive (1) any personal guarantee on advances and loans below $200,000, (2) the requirement that you must have been in business for the 1-year period before the disaster, and (3) the credit elsewhere requirement. The SBA can approve and offer EIDL loans to you based solely on your credit score, or use an alternative appropriate alternative method for determining your ability to repay. You may also request an advance of up to $10,000 to be used for operating expenses after applying for the EIDL, which the SBA must distribute within 3 days. You are not required to repay the advance if you are denied the loan.
Employee Retention Credit: You will receive a refundable payroll tax credit for 50% of wages paid to your employees during the COVID-19 crisis if you meet the following criteria: (1) your operations were fully or partially suspended, due to a COVID-19 related shut-down order, or (2) your gross receipts declined by more than 50% when compared to the same quarter in the prior year. The credit is based on qualified wages paid to your employees. If you have more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19 related circumstances. If you have 100 or fewer full-time employees, all employee wages qualify for the credit, whether you were open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to each eligible employee from March 13, 2020 through December 31, 2020.
Deferral of Social Security Payroll Taxes: As an employer, you are allowed to defer payroll taxes through the end of 2020. You will have to pay your deferred payroll taxes over 2 years in 2021 and 2022. Deferral wouldn’t apply if you have any 7(a) small business loan debt forgiven under the bill.
Employee Leave under the Families First Coronavirus Act: Your employees may be entitled to up to 12 weeks of paid leave beginning April 1, 2020 to care for themselves or family members if they contract COVID-19, or to care for children whose school/daycare has closed during the pandemic. You will be entitled to a 100% payroll tax credit for paid employee leave due to COVID-19. You must immediately post the Employee’s Rights Poster issued by the Department of Labor for your employees to be notified of their rights.
Business Losses: Any business losses you have incurred from tax years 2017 through 2019 may now be carried back 5 years. Your ability to use net operating loss carrybacks was previously eliminated for most businesses by the 2017 tax overhaul. You may also now use the full amount of net operating loss carryovers and carrybacks to be used for tax years beginning before Jan. 1, 2021.
Business Interest Expense Deduction: Your business is allowed to deduct 50% of your interest expenses in 2019 and 2020, instead of 30%.
Qualified Improvement Property: Your business will be able to immediately write-off costs associated with making qualified improvements to your facilities instead of having to depreciate those improvements over the 39-year life of the building.
Single Employer Pension Plan Update: If you maintain a single employer pension plan, the due date for your funding obligations or any contribution otherwise due in 2020 is extended to January 1, 2021. At that time, contributions due earlier are due with interest. The bill also provides that your plan’s status for benefit restrictions as of December 31, 2019, will apply throughout 2020.
Bankruptcy Update: Your eligibility threshold to file under subchapter V of chapter 11 of the U.S. Bankruptcy Code has been increased from businesses with less $2,725,625 of debt to businesses with less than $7,500,000 of debt. For bankruptcies under chapters 7 and 13, COVID-19 related payments from the federal government are excluded from your income. If you are currently in chapter 13 bankruptcy, you may seek payment plan modifications if your hardship is due to COVID-19.
Student Loan Payments for Employees: You are able to provide a student loan repayment benefit to your employees on a tax-free basis. Under the provision, you may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from your employee’s income. This provision applies for payments made after enactment and before January 1, 2021.
If you have any questions about the Act or other stimulus plans to combat the COVID-19 pandemic, please do not hesitate to contact Dominick Feld Hyde, PC at 205-536-8888 and we will be glad to assist you in your time of need.