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CARES Act

Posted on 03/31/20

Provisions for Employers/Businesses

Paycheck Protection Loans

  • $350 billion set aside for these loans.
  • Limited to lesser of payroll costs for 1 year period ending on date loan was made multiplied by 2.5 and EIDL Loan refinanced into Paycheck Protection Loan or $10 million
    • Payroll costs do not include compensation of employees in excess of $100,000, payroll taxes, compensation of employees with principal residence outside U.S., qualified sick leave or family medical leave for which credit is allowed under the Corona Virus Relief Act.
  • Maximum maturity of 10 years and 4% interest.
  • Proceeds may be used to cover payroll expenses, rent, interest on mortgage obligations, other debt obligations, and utilities.
  • Standard fees waived and no personal guarantee required by business owner.

Forgiveness of Paycheck Protection Loans

  • Forgiveness of loan for payments of borrower for payroll expenses, rent, interest on mortgage obligations and certain utilities during first 8 weeks after borrowing.
    • To seek forgiveness, borrower must submit documentation on number of employees and pay rates, cancelled checks for mortgage, rent, and utility payments.
    • Forgiveness reduced if workforce reduced during 8 week covered period.
    • Reduced if salaries for employees with annualized salaries under $100,000 are reduced by more than 25% during covered period.

Emergency Government Disaster Loan

  • Includes businesses with fewer than 500 employees, sole proprietors and ESOPs.
  • For any loan made under this program before December 31, 2020, no personal guarantee will be required on loans below $200,000.
  • Creates a new Emergency Grant to allow a business that has applied for a disaster loan to get an immediate advance of up to $10,000. The advance can be used to maintain payroll, and is not required to be repaid, even if the borrower’s request for an Emergency Government Disaster loan is denied.

Employee Retention Credit

A one-year only credit against the employer’s 6.2% share of Social Security payroll taxes for any business that is forced to suspend or close its operations due to COVID-19, but that continues to pay its employees during the shut-down.

  • The business is eligible for the credit if:
    •  operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19
    • the business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019.
  • Business will receive a credit against its 6.2% share of Social Security payroll taxes equal to 50% of the “qualified wages” paid to EACH employee for that quarter, ending on December 31, 2020.
  • The credit is refundable if it exceeds the business’s liability for payroll taxes.
  • Not available if Payroll Protection Loan taken.

Delay of Payment of Employer Payroll Tax and Self-Employment Tax

  • Allows employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of enactment through December 31, 2020, to be paid on December 31, 2021 (50%) and December 31, 2022 (50%).
  • Self-employed taxpayer can defer paying 50% of his or her self-employment tax that would be due from the date of enactment through the end of 2020 until the end of 2021 (25%) and 2022 (25%).
  • Not available if take out a payroll protection loan that is forgiven.

Changes to the Net Operating Loss Rules

  • Losses from 2018, 2019 and 2020, will be permitted to be carried back for up to five years. As was previously the case, a taxpayer will be permitted to forgo the carryback, and instead carry the loss forward.
  • Losses carried to 2019 and 2020 will be permitted to offset 100% of taxable income, as opposed to 80% under the TCJA.

Temporary (and Retroactive) Removal of Section 461(l):

  • The amount of “net business loss” an individual may use in a year to offset other sources of income is capped at $250,000 (if single; $500,000 if married filing jointly). Any excess loss is converted into a net operating loss, which was — prior to the passage of the CARES Act — subject to more stringent utilization rules than prior to the TCJA.
  • The latest legislation, however, puts a temporary halt on Section 461(l); not only for 2020, but retroactive to January 1, 2018. As a result, taxpayer who found a loss limited by the provision in 2018 or 2019 can file an amended return to claim a refund.

Exclusion from Income of Employer Payment of Employee Student Loan Debt

  • An employer can pay up to $5,250 in 2020 of an employee’s student loan obligation on a tax-free basis. Note, however, that this provision modifies existing Section 127, which permits an employer to pay up to $5,250 of an employee’s qualified educational expenses. This is now a combined limit.

Changes to the Interest Limitation Rules

  • With respect to the TCJA, new Section 163(j) limited a business’s ability to deduct its interest expense to 30% of “adjusted taxable income,” with any excess interest expense carried forward. The CARES Act would increase that limit to 50% of adjusted taxable income for 2019 and 2020, and perhaps more importantly given that most businesses will not have taxable income in 2020, the business can elect to use its 2019 adjusted taxable income in computing its 2020 limitation.

Qualified Improvement Property Fix

  • Qualified improvement property depreciable life to be reduced from 39 to 15 years, and with 100% bonus depreciation being available for all assets with a life of 20 years or less.

Provisions for Individuals

Special Rules for Using Retirement Funds for Coronavirus Costs

  • Allows a taxpayer to take a “coronavirus-related distribution” of up to $100,000 in the year 2020 free from 10% penalty.
  • Allows the taxpayer to spread the income over a 3-year period beginning with 2020.
  • The taxpayer also has the choice to avoid any income recognition by repaying the distribution to the retirement plan within three years of receiving it.

Individual Stimulus Payments

  • One time checks in the amount of $1,200 to Americans with AGI up to $75,000 single, $2,400 to Americans with AGI up to $150,000 married.
  • Additional $500 per child under 17
  • Pared by $5 for each $100 over AGI threshold.
  • Available to all with work-eligible SSN. Do not need current income to receive payment.
  • Based on 2018 or 2019 tax return – last filed. If below filing threshold will look at SSA-1099.
  • Will be paid electronically if you have provided direct deposit info on returns.
  • Acts as an advance credit, so if end up being over AGI threshold in 2020 potential of needing to pay back with 2020 tax return.

Increase of Unemployment Assistance

  • Increase by $600 per week for four months.
  • Includes non-traditional employees – gig workers and freelancers.

RMD Requirement

  • Temporary waives the requirement for this year only.

Changes to Charitable Contributions

  • Allows an individual to make a cash contribution of up to $300 made to certain qualifying charities and deduct the contribution “above-the-line” in computing adjusted gross income.

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