March 27, 2020
President Trump signed the CARES (Coronavirus Aid, Relief and Economic Stimulus) Act, a $2.2 trillion stimulus package this afternoon. This Act is a massive bill, the majority of which does not have tax impacts.
Here are some key highlights:
- Net Operating Losses- Previously, NOLs could only be carried forward, not backward, and could shield up to 80% of taxable income. With the CARES Act, NOLs generated in 2018, 2019, and 2020 can be carried back, up to 5 years, and can shield 100% of taxable income in tax years before 2021.
- Qualified Improvement Property- A technical correction was added to the Tax Cuts and Jobs Act allowing for a 15-year recovery period for Qualified Improvement Property (QIP), which is now eligible for bonus depreciation.
- Business interest deduction limitations have temporarily been made more favorable by increasing the limitation from 30% to 50% of adjusted taxable income for 2019 and 2020.
- Payroll Tax Expense Deferment- Businesses can defer payment of their 2020 employer payroll taxes, with half the payment now due 12/31/2021 and the other half due 12/31/2022.
- Employee Sick and Family Leave payments- Certain employers must provide their employees with paid sick leave and expanded family medical leave for specified reasons related to COVID-19. See a more detailed breakdown here.
- Small Business Loans- The maximum loan amount for Small Business loans is increased to $10 million through the end of 2020. Loans can be used for payroll support, paid sick and medical leave for employees, insurance premiums, and overhead costs.
- There are some provisions for loan forgiveness for amounts spent by the borrower during an eight-week period after the origination date of the loan for expenses such as payroll, rent, utilities and mortgages. Limitations apply.
- Refundable Payroll Tax Credit- Certain employers are eligible for a refundable payroll tax credit in the amount of 50% of wages paid to employees from February 15 to June 30. Conditions include:
- Operations fully or partially suspended due to COVID-19; OR
- Gross receipts declined by more than 50% for the quarter, year-over-year
- Charitable Contributions- Corporations' charitable deduction limitation is increased from 10% to 25% of taxable income.
- Employee Retention Credit- This credit grants eligible employers a credit against employment taxes equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021 who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts. Limited to $10,000 in aggregate per employee.
- Expanded Unemployment benefits –
- The Pandemic Unemployment Assistance (PUA) program extends unemployment benefits ($600 per week for up to 4 months) to those not typically eligible, including self-employed workers, independent contractors, and those with limited work history, who are unable to work due to the outbreak.
- In addition, the traditional time frame for unemployment benefits is extended by 13 weeks (through end of 2020).
- Stimulus Payments- All U.S. residents whose AGI is $75K or less will receive direct cash payments of $1,200. For married couples, the payment is $2,400 with an income threshold of $150K. There will be additional payments of $500 per child.
- COVID-19 Testing- All testing for COVID-19 is covered in full by private health insurance companies.
- Student Loans- Federal student loan payments (interest and principal) are deferred for 6 months (through September 30, 2020) without penalty.
- Charitable deductions expanded- Individuals will be allowed a $300 above-the-line tax deduction to incentivize individuals who do not itemize their taxes to receive a financial benefit from some of their charitable contributions.
- Required Minimum Distributions- There is a temporary elimination of required minimum distributions for individuals who are 72 or older.
- Early Retirement Plan distributions- The 10% early distribution penalty (for withdrawals of up to $100K for COVID-19 related purposes) is waived from qualified retirement accounts.
We are continuing to closely monitor this ever-changing situation, and are here to answer your questions. Contact us below, or visit our COVID-19 Resource Page for breaking news, updates and helpful links.