CARES Act Signed Into Law | Outline of Provisions for Businesses and Individuals

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has been signed by President Trump and passed into law as of March 27, 2020. The far-reaching legislation stands as the largest emergency aid package in US history. 

The CARES Act includes a “Marshall Plan” for the health care system to help provide needed treatment during the pandemic and financial assistance to state, local, tribal and territorial governments, as well as to private nonprofits providing critical and essential services. 

The $2 Trillion package offers significant relief for individuals and businesses that are impacted by COVID-19. Here is an outline and additional commentary from our team on provisions in the law. Please contact your Lurie advisor for specific guidance related to your situation. 

Unemployment Insurance

  • Supports independent contractors and self-employed persons whose businesses are shut down due to COVID-19.
  • Qualifications are:
    • A person not otherwise eligible for unemployment for any other job
    • Unemployed, shut down, or unable to work due to COVID-19
  • Payment will be retroactive to January 27, 2020 – eligibility ends December 31, 2020
  • Allows for up to 39 weeks of total coverage
  • Benefits will be paid at 100% of covered individuals’ regular weekly compensation; not less than $600 per week

Individual Assistance

Standard
Rebate

Initial Phase-Out
AGI

Total Phase-Out
AGI

Single

$1,200

$75,000

$99,000

Married,
Filing Jointly

$2,400

$150,000

$198,000

$500 for each dependent child under age 17

Considerations:

  • Reduction in rebate by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold.
  • Rebate amount based on 2019 tax returns or 2018 filings if 2019 has not been filed or Social Security statements if neither return is filed.
  • Children who are (or can be) claimed as dependents by their parents are not eligible. This includes college-age children claimed by parents.
  • These payments are considered an advanced credit for the 2020 filing.
    • NOTE: If the information used now by the IRS to calculate these payments is inaccurate, a true-up will occur with the 2020 return to be in the taxpayer’s favor. No interest is due and no repayment if excess rebates are issued.

Related: IRS warns of coronavirus-related tax scams. “Seniors should be especially careful during this period, the IRS cautioned. The IRS is reminding retirees — including those who receive Forms SSA-1099 and RRB-1099 — that nobody from the IRS will be reaching out to them by phone, email, mail or in person asking for any kind of information to complete their economic impact payment, also sometimes referred to as rebates or stimulus payments. The IRS is sending the $1,200 payments automatically to retirees, with no action or information needed from them to receive the money,” (AccountingToday).

A coronavirus-related distribution of up to $100,000 made in 2020 is not subject to the early withdrawal 10% penalty

  • Distribution may be recontributed to an eligible plan at any time during the 3-year period beginning on the day after the date on which distribution was received
  • If not recontributed; included in income ratably over a 3-year period beginning with such tax year
  • For a qualified employer plan, the loan limit has increased from $50,000 to $100,000

For more on this topic, read: “What the CARES Act Means for Your Qualified Retirement Plans.”

Required Minimum Distributions are waived for 2020. This waiver does not apply to defined benefit plans.

Individuals – Up to $300 of above-the-line deduction for charitable contributions for non-itemizing taxpayers

In addition, the income-based limitation on deductions for donations of cash in 2020 to charitable organizations (other than certain private foundations and donor advised funds) has been lifted for 2020.

Business Assistance

The charitable contribution limitation for corporations has been increased from 10% of taxable income to 25% of taxable income.

  • Refundable payroll tax credit for 50% of wages ($10,000)
    • Eligible employers:
      • Employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings, or
      • Who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis – not available to employers receiving Small Business Interruption Loans.
    • Employers who had an average number of full-time employees in 2019 of 100 or fewer – all employee wages eligible.
    • Employers with greater than 100; only the wages of employees who are furloughed or faced reduced hours are eligible for the credit
  • Not available to employers obtaining a loan under the Payroll Protection Program.
  • Click here for frequently asked questions related to the Employee Retention Credit.
  • Allows employers to delay payment of the employer portion of social security taxes through the end of 2020
    • 50% due by December 31, 2021
    • 50% due by December 31, 2022
  • Not available to taxpayers who have debt forgiven under Payroll Protection Program
    • Available for losses incurred in 2018, 2019 and 2020
    • Loss can be carried back five tax years preceding the tax year of such loss
    • For tax years prior to 2021, 80% limitation does not apply
    • Allows for the deduction of excess business losses (losses exceeding $250,000 for a single individual or $500,000 for a married couple) to be fully deducted when incurred in 2018, 2019 or 2020
    • Allows corporations to claim 100% of AMT credits in 2019
    • Modifies the limitation on the deductibility of interest expense under 163(j) from 30% of adjusted taxable income to 50% for 2019 and 2020
    • Increase does NOT apply to partners in partnerships for 2019 – Available in 2020
    • Taxpayers may elect out of the increase for any tax year
    • Taxpayers may elect to calculate the interest limitation for their tax year beginning in 2020 using the adjusted taxable income for 2019 or 2020
    • Technical correction revising recovery period from a 39-year life to a 15-year life
      • Interior, nonstructural improvements to a nonresidential building that was already placed-in-service
      • 20-year life for ADS purposes
      • Now bonus eligible
    • Effective for property placed-in-service after 12/31/17

    Exemption from excise tax is for distilled spirits removed after December 31, 2019 and before January 1, 2021 for use in or contained in hand sanitizer

    Business Loans

    The CARES Act allocated $350 billion for the Paycheck Protection Program, which is meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30. SBA PPP Loans are potentially all or partially forgivable. Any forgiveness does not create taxable income.

    For additional information on the Paycheck Protection Program, see our PPP overview here

    If you have already received an EIDL for the expenses, the amounts can be rolled into a PPP loan.

    For details on the Paycheck Protection Program, see our PPP overview here.

    In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan.

    The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. A $10,000 loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid. 

    See also “EIDL vs PPP | Which One Is Right for My Business”

    The CARES Act includes the opportunity for an up to a $10,000 Economic Injury Disaster Loan Advance.

    This Advance may be available even if your EIDL application was declined or is still pending, and will be forgiven.

    Visit www.SBA.gov/Disaster to apply via a new streamlined application; one needs to be submitted even if you previously applied. Applying for the Advance will not impact the status or slow your existing application.

    The SBA has made all deferments through December 31st automatic.  Small business owners with existing SBA loans do not need to request deferment.

    For More Information

    This is just an overview of the CARES legislation provisions – and not meant to replace guidance from your CPA or Lurie advisor. Our team will  continually update this page with guidance and resources. In the meantime, please don’t hesitate to reach out to your Lurie advisor with questions or concerns you have about taxes or your individual financial or business situation.

    We are here to help. Click here to contact us. 

    Share Post: