The Coronavirus Aid, Relief, and Economic Security (CARES) Act
Please note: This is not intended to cover all the tax details and credit calculation information —more information will be forthcoming but the law is not even a week old yet. Forms 941 will require some revisions in light of the new payroll credits and tax deferrals —–stay tuned! Few businesses will have credit information questions for payroll reported March 31, 2020 (the first quarter). It is possible, but not likely. But the second quarter will be very different!
We do have a few resources we can follow up if someone has a question right now —but again the unemployment applications for self-employed individuals and other business owners, and those usually not eligible for unemployment and tax credits detailed information and how to …. are NOT AVAILABLE yet.
And keep in mind PPP loans with payroll from those proceeds will not be eligible for the other payroll credits/benefits
This economic stimulus package signed by the President on March 27, 2020 made broad and sweeping changes to tax law, loans, benefits, credits and other programs in response to the Corona virus pandemic.
This is a brief summary only as the act is significant and impactful in so many areas that the details are overwhelming. If any portions of the summary are of interest, please contact us for more details and information on actions needed now to take the best advantage of this new law.
Provisions for Business:
NOL Carrybacks: The new act now permits up to 5-year carrybacks of Net Operating Losses (NOLs) from years ending in 2018, 2019 or 2020 and removes the current law limitation to allow the NOLs to offset income fully.
Other changes include the acceleration of claims for AMT credit refunds to 2018 and 2019 ability to elect to claim refundable AMT credits in 2018 or in full for 2019.
Interest expense limitations have been relaxed for 2019 and 2020 with expanded interest deductions available to partners.
Employer Retention Credit: A new refundable 50% employee retention credit for employers with a full or partial business suspension due to the COVID-19 emergency. Also available to businesses where business’ receipts in 2020 are down 50% from the same quarter in 2019. The credit is 50% of wages and health insurance costs with wages limited to $10,000 per employee. The credit applies to the employers’ portion of payroll taxes. Any credits in excess of the payroll taxes is available for refund. Wages applied to other credits like Work Opportunity, payroll research credit, and payroll credits for Paid Sick Leave or Family Medical Leave Act are not eligible for this credit.
Deferral of payroll taxes: Payments for employer’s payroll taxes for 2020 may be deferred with one-half of the amount repaid by 12/31/21 and the remainder due by 12/31/22. The deferred payroll taxes include the employers’ portion of the Social Security and Medicare taxes. This provision is effective with the date of enactment and through 12/31/2020. There is no interest expense connected with the deferred tax amounts.
Deferral of pension funding –single employer pension plans may delay the due date of their funding obligations due in 2020 until January 1, 2021. Contributions delayed will be due with interest by January 1, 2021.
Certain aviation excise taxes are suspended through December 31, 2020.
Alcohol Excise taxes related to alcohol spirits now used in the production of hand sanitizer based on guidance issued by the FDA for the 2020 year are also suspended.
Qualified improvement property with a 15-year recovery life has been recognized as property eligible for bonus depreciation for a technical correction to the tax reform of 2017. This adjustment is retroactive to the date of the 2017 reform enactment.
Recovery rebates of up to $1,200 per individual and $2,400 for married couple with $500 per child paid by direct deposit or check. The rebates are scheduled for processing within 3 weeks based on 2018/2019 individual income tax return records. Social security recipients will be provided the rebate based on their social security records. The rebates phase out as income increases between $75,000 and $99,000 for a single filer and $150,000 and $198,000 for a jointly filed return (with no children.) The phase out amounts are adjusted for the number of children. College age students and those individuals included as dependents on parents’ or custodian’s returns are not included in the rebates.
Rules on retirement distributions are relaxed: The 10% early withdrawal penalty for certain retirement distributions of up to $100,000 from qualified retirement accounts (IRA’s, defined contribution plans, and 401k plans) for withdrawals for corona virus related purposes in 2020 is waived. Rules are in place to permit the withdrawals to be re-contributed. The withdrawals may be spread out over a three year period for taxability, if the individual so elects. Required minimum distributions (RMD) required for payment by April 1, 2020 because of the account owners’ having turned age 70 ½ in 2019 are waived.
Charitable contribution deductions of up to $300 are permitted for non-itemizers. The limits for charitable contributions are increased in 2020 for both individual and corporate taxpayers to encourage charitable contributions during this time.
An income exclusion for the employee on student loan payments up to $5,250 when the employer makes the loan payment through an employer sponsored educational assistance program. This exclusion is only available from the date of enactment through the end of 2020.
Additional clarifications were made to the Sick Pay and Family Medical Leave Act payments as defined in the FFCRA act of March 18, 2020. These modifications are in the nature of qualifications and explanations of other employee situations for payments and partial payments.
Other CARES provisions:
SBA Paycheck Protection Program (PPP)– to provide loans up to a maximum of $10 million to eligible businesses, nonprofits, or veterans organizations with not more than 500 employees. Specially included groups are the accommodation and food service businesses that employ fewer than 500 employees per physical location as well as sole proprietors, contractors and other self-employed individuals. Loans made from February 15, 2020 through June 30, 2020 are eligible. Covered loans may pay for payroll costs, health insurance, employee salaries, commissions, or similar compensation and payments for qualifying mortgage or rent obligations, utilities and interest on previously incurred debt. Limits include a cap of $100,000 on an employee’s compensation for a qualifying loan. Loan forgiveness extends for loan amounts spent during an initial eight-week period for expenses including payroll costs, with forgiveness dependent on employee retention. Amounts forgiven under this loan program are not borrower’s income for federal and state income tax purposes.
Expansion of Unemployment Benefits: Benefits of up to four months of full replacement wages for individuals who lose a job or are furloughed due to the corona virus emergency. This provision includes the temporary waiver of the one-week waiting period and includes individuals usually ineligible for unemployment benefits like self-employed, independent contractors and those with limited work history and similar others.
Multiple provisions of emergency relief funding: these include but are not limited to healthcare provisions for Medicare and Medicaid services, medical supply shortages, medical device shortages, and support for healthcare providers and telehealth services. Other emergency funding for combating coronavirus outbreaks for state, local and tribal governments, hospitals, FEMA disaster relief fund, Strategic National Stockpile, Centers for Disease Control Centers, vaccines, therapeutics, diagnostics and other preparedness needs, food assistance and public transportation emergency relief.
This brief overview may have generated questions; please let us know how we may help. Many of these provisions will have more clarification and definition in the days to come. And experts conclude that this round of benefits will not be the last new law to expand relief and provide additional benefits to US citizens during this pandemic. Stay tuned!