On Friday, March 27, 2020, President Trump signed into law the $2.2 trillion spending bill known as the “Coronavirus Aid, Relief and Economic Security (“CARES”) Act to support the economy during the pandemic. Some of the highlights of the Bill are as follows:
- An important provision of the Act called the “Paycheck Protection Program” provides for forgivable business loans up to $10 million to small businesses through the Small Business Administration. The loan period is from February 15, 2020 to June 30, 2020. This provision allows generally any business with less than 500 employees to borrow and have that loan forgiven to the extent of a formula which includes payroll (limited to an annual salary per employee of $100,000 prorated over the covered period), paid medical or sick leave, mortgage payments, insurance premiums and any other debt obligations such as rents and utility payments. Qualified sick leave and family leave wages are not included if a credit is available under the Families First Coronavirus Response Act.
- Under the Act, all U.S. residents with AGI below $75,000 ($150,000 for married couples) are eligible for a full $1,200 “rebate” ($2,400 if married) so long as they are not a dependent of another taxpayer. They are also eligible for an additional $500 per child. The rebates begin to phase out for AGIs above these limits, and completely phase out at $99,000 ($198,000 for married). These rebates are being treated as advance refunds on 2020 tax credits which credits will be reduced when taxpayers file their 2020 tax return. These rebates are not available to estates and trusts.
- There are also charity-related provisions creating an additional deduction of up to $300 in addition to the standard deduction, and a suspension of student loan payments through September 30, 2020 without penalty to the borrower.
- The Act also includes FICA tax credits for employee retention. It creates a refundable payroll tax credit for 50% of qualified wages paid to employees during the period March 13, 2020 through December 31, 2020. The term “qualified wages” is defined differently for companies with greater than 100 employees and companies with 100 or fewer employees. The credit covers the first $10,000 of compensation plus health benefits, paid to an eligible employee.
- Also included are deferrals of employer-side FICA taxes where businesses will be able to defer 50% of the FICA taxes on the employer side until December 31, 2021, and the other 50% to December 31, 2022. It also provides a temporary increase in the amount of interest expense businesses are allowed to deduct from 30% to 50% for 2019 and 2020.
- The Act contains provisions to free up net operating losses for individuals who are losing money in their business in 2020, which losses will be able to be carried back to earlier years to seek an immediate tax refund.
- Pandemic Unemployment Assistance program. This program provides benefits for individuals who are not traditionally eligible for unemployment benefits such as self-employed individuals, independent contractors and individuals whose work is limited as a direct result of the coronavirus. “Covered individual” need to meet certain criteria in order to qualify for assistance, all of which are caused by or are directly related to the corona virus. However, “covered individuals” do not include individuals who have the ability to telework with pay such as working from home or who are receiving paid sick leave or other paid leave benefits.
Provisions for Retirement Plans:
- Deadline for making contributions to an IRA for 2019 is extended to July 15, 2020, consistent with the new due date for filing of tax returns and payment of taxes.
- Special penalty-free coronavirus-related distributions for eligible taxpayers from retirement plans and IRAs up to $100,000 taken during 2020. Income attributable to such distributions can be included over a 3-year period, and recontribution of the distribution is allowed also over 3 years. There is also a provision Increasing plan loan limits from $50,000 or 50% of the vested account balance, to $100,000 or 100% of such vested balance.
- Suspension of the RMDs for 2020. All Required Minimum Distributions, including those for inherited IRAs as well as traditional IRAs of those over age 70½, are suspended for 2020.