On March 25, 2020, the Senate approved the largest economic relief package in US History. The broad ranging Act is a massive stimulus bill that will help address the financial and health ramifications of the COVID-19 Virus. The "CARES Act" provided significant tax and non-tax stimulus to both individuals and business and totals $2.2 trillion.
Impact to Businesses
Loan Options: Currently, there are several loan programs geared at helping small businesses under 500 employees including the following loan options through the Small Business Administration (SBA):
SBA Paycheck Protection Program - see here
Emergency Economic Injury Disaster Loans - see here
Employee Retention Credit: The CARES Act created refundable payroll tax credits for businesses that retain their employees during the COVID-19 crisis. These credits are in addition to the payroll tax credits provided in the Families First Coronavirus Response Act for employers providing emergency paid and sick leave to employers related to the virus. The Employee Retention credits are available if your business has been fully or partially suspended as a result of a government order. For employers with under 100 employees, a credit of up to $10,000 per person may be available for wages paid to employees. The credits equal a maximum of 50% of the qualified wages paid after March 12, 2020, through December 31, 2020. This credit is not available if the employer takes a Paycheck Protection Loan.
Qualifying employers must fall into one of two categories:
The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
More information from the IRS
Payroll Tax Credits under the Families First Coronavirus Response Act (FFCRA): The FFCRA allows for employers fewer than 500 employees to claim tax credits on amounts paid to employees who are unable to work due and are on paid sick leave or public health leave due to the Coronavirus. The credits apply against the employers share of Social Security and Medicare taxes and equal the amount paid by the employers to employees under these leave programs. The credits cover 10 days of paid leave and the amount of the credit depends on the type of the leave.
Type 1 includes leave for employees who are caring for someone subject to quarantine, employees who are caring for their child due to school or childcare closure and other similar circumstances. These credits are limited to $200 per employee per day and $2,000 total.
Type 2 includes leave for the employee being quarantined or isolated by government order, the employee has been advised to quarantine or isolate by a healthcare provider or the employee is experiencing symptoms and seeking a medical diagnosis. The amount changes for these credits to up to $511 per day and $5,110 in the aggregate per employee.
Delay of Employer Payroll Taxes Due: The CARES Act also allows employers and self-employed individuals to postpone the payment of their portion of Social Security tax on employee's wages through December 31, 2020. The Act defers the payment requirement and requires 50% to be paid by December 31, 2021 and the remaining by December 31, 2022.
Net Operating Losses (NOLs): The Act modifies the 80% income limitation for businesses for years beginning before 2021. For business losses for the years 2018-2020, a 5 year carry back period is allowed. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to use this carryback.
Business Interest Limitation: Limitations have been changed from 30% of adjusted taxable income based on EBITDA to 50% for 2019 and 2020 (2020 in the case of partnerships). Taxpayers may elect to use 2019 income in place of 2020.
Improvement Property: Qualified improvement property allows for depreciation as a 15-year property and bonus depreciation for property acquired and placed in service after Sept. 27, 2017, to align with the Tax Cuts and Jobs Act.
Impact to Individuals
Financial Aid Payments (Stimulus Checks)
The US Treasury will be issuing checks to many Americans to provide financial relief during the Covid-19 pandemic. Individuals earning $75,000 per year or less will receive a $1,200 check tentatively by April 6th. The amount of the check is phased out for those earning over $75,000 to a maximum of $99,000. Married couples will receive $1,200 each if their combined income does not exceed $150,000. Those amounts are phased out for married couples earning over $150,000 to a maximum of $198,000. These income limitations will be based upon the 2019 tax return, if available. If the 2019 tax return is unavailable, the 2018 return will be used. Taxpayers will also receive $500 per qualifying child (age 16 and under). Considering the recent 3 month filing extension, taxpayers should plan accordingly if they have yet to file their 2019 return.
Tax Filing and Payment Extension
The individual filing deadline of April 15th has been extended to July 15th. Fortunately, this extension of time to file also includes an extension of time to pay. We do advise against waiting unnecessarily, especially if you are expecting a refund.
Unemployment Options if Effected by Coronavirus
Please see here.
The CARES Act creates a new Coronavirus relate distribution option for qualified plans. Participants may take up to a $100,000 Coronavirus related distribution between January 1, 2020 and December 31, 200, to a "qualified individual" that has been adversely impacted by the virus. These distributions are exempt from the 10% early withdrawal penalty and can be elected to be taxed over a three year period beginning in 2020. Additionally, the CARES Act changes the maximum amount of plan loans (if eligible within your plan) from $50,000 to $100,000 and provides payment relief on outstanding plan loans.
Individuals will be allowed to claim an above the line deduction of up to $300 for charitable contributions for the 2020 year (excluding carryforwards). Further, individuals may be able to claim unlimited charitable contributions in 2020 (normally limited to 50% of AGI).
The US Department of Housing and Urban Development has enacted a 60-day moratorium on all evictions and foreclosures if the mortgage is insured through the FHA. Additionally, you may be able to defer your mortgage payments for up to 6 months. The best course of action is to reach out to whoever services your mortgage and ask what forms of relief are available to you. If you are a renter, reach out to your landlord.
Interest on student loans has been deferred for an entire year and will not accrue during this period. Reach out to the organization servicing your student debt if you need to cease payments altogether. However, if you are able to continue making payments on your student loans, you could eliminate significant amounts of debt in a relatively short period of time and thus reduce future interest expenses.