On Friday, March 27, President Trump signed the more than $2 trillion coronavirus stimulus bill known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. It is the third step in a wave of legislation designed to provide relief to businesses and individuals impacted by the coronavirus. Earlier legislation included an $8.3 billion bill to fund vaccine development efforts, as well as the passage of the Families First Coronavirus Response Act to provide expanded paid leave.
The CARES Act will offer loans for small and large businesses, provide direct payments to many Americans, expand unemployment insurance, and provide additional resources to an overwhelmed health care industry as well as state and local governments.
This landmark legislation is comprised of 880 pages, which we have summarized at a high level below. As we all know, the devil is in the details. We will send additional updates shortly with more detailed information about the provisions that apply most directly to our clients.
Help for Businesses
- Paycheck Protection Program - $349 billion has been allocated to help businesses with fewer than 500 employees make payroll and cover other expenses from February 15 to June 30. Businesses may take loans up to $10 million and proceeds can be used to cover payroll costs (compensation above $100,000 excluded). Loans may be forgiven if the funds are used for payroll, interest payments on mortgages, rent, and utilities. However, the forgiveness would be reduced in proportion with any reduction in employees.
- Employee retention credit – Creation of an employee retention tax credit to incentivize businesses to keep workers on the payroll. Eligible employers are allowed a credit against employment taxes equal to 50 percent of qualified wages (up to $10,000) for each employee.
- Payroll tax credit refunds – Advance refunding of the payroll tax credit enacted in the Families First Coronavirus Response Act.
- Deferred payroll tax payments – An ability to delay the employer’s share of Social Security payroll taxes until December 31, 2020, with 50 percent due on December 31, 2021 and the remaining 50 percent due on December 31, 2022.
- Net operating losses (NOLs) – Businesses can carry back losses from 2018, 2019, and 2020 for up to five years, and net operating losses would temporarily not be subject to a taxable income limit, which may make carryback claims available to recover 2018 taxes.
- Prior Year AMT Credits – Businesses with tax credit carryforwards and previous alternative minimum tax (AMT) liability can claim larger refundable tax credits.
- Net interest deduction limitation – An expansion of the net interest deduction limitation from 30 percent to 50 percent of adjusted taxable income for 2019 and 2020.
- Assistance for hard hit industries – $454 billion in corporate aid, including $25 billion in direct financial aid to struggling airlines, $4 billion for air cargo carriers, and $17 billion for businesses deemed critical to U.S. national security. The Treasury Secretary will have authority to make direct loans from a portion of these funds, with oversight from a newly-created inspector general and oversight board.
- Stock buybacks – A ban on stock buybacks for companies receiving a government loan from the stimulus package. The ban would last the term of the government assistance plus one year.
Help for Individuals
- Recovery rebates – One-time payments of $1,200 for people making up to $75,000 a year and $2,400 for couples making up to $150,000 a year, with an additional $500 per child. Individuals with little or no tax liability would receive the same amount. Payments would decrease for those making more than those amounts, with an income cap of $99,000 for individuals and $198,000 for couples. These recovery rebates are being treated as advance refunds of a 2020 tax credit, and taxpayers will reduce the amount of the credit available to them on their 2020 tax return.
- Unemployment compensation – A broad expansion in unemployment benefits, which will extend to freelancers, gig workers, and others who typically would not qualify. It will also increase current unemployment assistance by $600 a week for four months. And, the federal government will provide temporary full funding of the first week of unemployment for states with no waiting period and extend benefits for an additional 13 weeks after state benefits end, through December 31, 2020.
- Retirement plan distributions – A waiver of the 10 percent early withdrawal penalty for retirement fund distributions up to $100,000 taken in 2020.
Help for Public Health and State and Local Governments
- Health care relief – An investment in the health care system to address supply shortages, diagnostic testing, support for health care providers, greater access to telehealth services, and the creation of drugs to treat the virus.
- State and local assistance – Nearly $340 billion will go to state and local government programs, with $150 billion allocated to a Coronavirus Relief Fund for state and local governments struggling with skyrocketing coronavirus-related costs.
There is speculation that Congress may soon begin working on a fourth wave of legislation, which may include additional funding for larger direct payments to individuals, expanded FMLA eligibility, and more grant money for states.
We will continue to provide updates as additional tax, legislative, and other COVID-19 related business developments emerge. We are also regularly updating our COVID-19 Resource Center, which you can access at any time here. In the meantime, if you have any questions about these or any other matters, please do not hesitate to contact your Kreischer Miller professional or any member of our team.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.