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CARES Act: Key Provisions (2020) Thumbnail

CARES Act: Key Provisions (2020)

For Individuals

2020 Stimulus Tax Rebates for Individuals

Provides payments to taxpayers (subject to income limits) through a tax credit

  • Single Filers: Up to $1,200
    • Phase out $5 for every $100 of income over $75,000 (adjusted-gross-income)
  • Married Filing Jointly: Up to $2,400
    • Phase out $5 for every $100 of income over $150,000 (adjusted-gross-income)
  • For each child under age seventeen: Up to $500

Income based on most recently filed tax return (2018 or 2019)

Required Minimum Distributions

2020 Required Minimum Distributions (RMDs) are waived

  • RMDs waived for: Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and 457(b) Plans
    • Includes Inherited IRAs
  • Returning 2020 RMDs that have already been taken:
    • This can potentially be accomplished if rolled back into a retirement account within 60 days of the distribution (60-day rollover rules apply)
    • For distributions which the 60-day rollover window has expired, a rollover can still potentially be completed if it can be shown that the individual has been impacted by the COVID-19 crisis according to (some fairly liberal) guidelines

Penalty-Free Retirement Distributions

Certain taxpayers are permitted to withdraw up to $100,000 from an IRA or retirement plan for “coronavirus related distributions” without incurring the 10% early withdrawal penalty

  • Individual, spouse, or dependent must have been diagnosed with coronavirus, or experiencing “adverse financial consequences” due to the virus
  • Distributions can either be repaid over 3 years or included in participant’s income over a 3-year period

Charitable Contributions

  • Charitable deduction (above-the-line) of up to $300 for taxpayers who do not itemize deductions
  • For taxpayers itemizing deductions: the AGI limitation for cash donations is removed
    • Must be made in cash directly to a 501(c)(3) charitable organization

Student Loans

Required payments on Federal student loans may be deferred until September 30, 2020

  • No interest will accrue on the debt during this time period

Employers can pay an employee's student loan debt without being considered taxable compensation to the employee

  • Up to a $5,250 limit
  • Lasts through the end of the year

Unemployment Compensation Benefits

Pandemic Unemployment Assistance

  • Self-employed individuals and other individuals who normally might not qualify for unemployment, might be eligible to receive up to 39 weeks of benefits

Regular Unemployment Benefits Expanded

  • $600 increase to regular unemployment benefit amounts across-the-board


For Businesses

Employment Taxes

Employers and self-employed individuals are able to defer payment for employer’s portion of Social Security tax for employees

  • Includes the 6.2% Social Security tax for the employers share
  • Does not include employee portion of Social Security tax or the 1.45% Medicare tax
  • Must be paid over the following two years (one-half by 12/31/2021 and one-half by 12/31/2022)

Modifications for Net Operating Losses (NOL)

NOLs for 2018, 2019, and 2020 can be carried back for up to five years and if carried forward, can offset 100% of taxable income until 2021

  • Does not include real-estate investment trusts (REITs)

For tax years beginning before January 1, 2021, the 80% taxable income limitation is temporarily repealed

Employee Retention Credit

Employers may be provided a refundable payroll tax credit for 50% of qualified wages paid to employees during 2020 if business operations are impacted by COVID-19 crisis (within limitations)

  • If operations were fully or partially suspended due to shutdown order, or
  • Gross receipts declined by more than 50% when compared to the same quarter in the prior year 

Changes to Excess Business Loss Rules

Pass-through businesses and sole proprietors have been waived from the excess business loss limitation for 2018, 2019, and 2020

  • Allows business owners to deduct current year losses of any amount against other non-business income 

Deductibility of Business Interest

The 30% business interest limitation is increased (with adjustments) to 50% for 2019 and 2020 

Charitable Contributions

The limitation on charitable contributions made by C Corporations have been increased from 10% to 25% of taxable income

  • Contributions must be made in cash directly to qualified charities 

SBA Loans: Paycheck Protection Program & Economic Injury Disaster Loans

Certain businesses may qualify for Small Business Administration (SBA) loans up to $10 million

  • Some of these loans may be forgivable when used for qualifying expenses
  • See separate article comparison chart for more information on PPP and EIDL programs


Resources

S. Department of the Treasury: Assistance for Small Businesses
home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses

SBA Economic Injury Disaster Loan information in response to Coronavirus (COVID-19)
sba.gov/disaster-assistance/coronavirus-covid-19

Paycheck Protection Program information
sba.gov/funding-programs/loans/paycheck-protection-program-ppp

SBA size standards to determine whether or not your business qualifies as small
sba.gov/federal-contracting/contracting-guide/size-standards

NAICS code 72 to confirm waived affiliation standards for hotel and food services industries
census.gov/eos/www/naics/

NAICS code 72 to confirm waived affiliation standards for franchises
sba.gov/sba-franchise-directory

Find an SBA lender
sba.gov/local-assistance

Application for Paycheck Protection Program (PPP)
home.treasury.gov/policy-issues/cares/assistance-for-small-businesses

Application for Economic Injury Disaster Loan (EIDL)
https://covid19relief.sba.gov/#/

Disclaimer: This is provided as a brief overview of the programs, and excludes additional important information. It is not to be construed as legal or tax advice. Please consult with your trusted professional for your specific situation.