How the CARES Act Will Help You and Your BusinessMarch 30, 2020
The Coronavirus Aid, Relief, and Economic Security or CARES Act has been signed into law. How will this impact you?
On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It’s the largest federal relief package in U.S. history, providing roughly $2 trillion in aid to individuals and businesses hit by the coronavirus (COVID-19) pandemic. Here are the highlights.
The new law provides one-time rebate payments to lower- and middle-income individuals and families. Specifically, the rebates are advances for income tax credits that will equal:
- $1,200 for singles, phased out at adjusted gross income (AGI) levels starting at $75,000,
- $1,200 for heads of households, phased out at AGI levels starting at $112,500, and
- $2,400 for married couples filing jointly, phased out at AGI levels starting at $150,000.
In addition, families will receive an additional $500 credit for each qualifying child under 17; this credit will be subject to same AGI-based phaseouts. The credits are reduced by $5 for every $100 of AGI above phase-out thresholds. So, for example, the credit for an individual with no children would be fully phased out at $99,000 of AGI.
To expedite advance rebates, the IRS will issue electronic payments for people who have provided bank account information when filing prior-year tax returns. Other people will receive paper checks that will take longer to distribute. Rebates will be based on 2019 tax data (or 2018 tax data for taxpayers who haven’t yet filed). Adjustments may be made when filing your 2020 taxes, but the IRS won’t require individuals to repay any overpayments of their credits (though you will receive the difference in 2020 if you were previously underpaid based on your 2020 tax return). The credit is fully refundable for individuals and families with low or zero tax liabilities.
Other financial relief for individuals provided by the CARES Act include:
- Expansion of unemployment benefits,
- Waiver of the 10% penalty on related early distributions of up to $100,000 from qualified retirement accounts for COVID-19-related purposes made on or after January 1, 2020 and before December 31, 2020,
- Waiver of required minimum distributions (RMDs) from certain retirement plans for 2020,
- An above-the-line deduction of up to $300, for tax years beginning after December 31, 2019, for people who donate cash to charities but take the standard deduction,
- Temporarily increased limits on charitable contribution deductions for people who itemize, and
- Exclusion of up to $5,250 for employer payments of student loans made before January 1, 2021.
- Extensive disaster-relief relief programs, including $350 billion in Small Business Administration (SBA) loans and $500 billion of loans for “seriously distressed and absolutely essential companies” in sectors impacted by the crisis,
- Deferral of the employer portion of payments of Social Security payroll taxes through the end of 2020,
- Temporarily increased limits on charitable contribution deductions for corporations,
- Temporary modification of net operating loss (NOL) and limitation on losses rules,
- Accelerated credits for prior year corporate alternative minimum tax (AMT) liabilities, and
- Modified limit on business interest deductions from 30% to 50% of adjusted taxable income for 2019 and 2020 for businesses with more than $25 million average annual gross for the three preceding tax years.
The new law also includes provisions that allow people to receive COVID-19-related healthcare treatments and provide funding to state, local and territorial governments for essential services during the crisis. These provisions will benefit individuals and families, too.
On the business side, the CARES Act creates a new retention credit for employers that continue to pay wages while their operations are partially or fully suspended because of COVID-19 pandemic. Businesses also may be eligible for the credit if their gross receipts decline by more than 50% compared to the same quarter in the prior year. Specifically, eligible employers may claim a 50% refundable payroll tax credit on wages (including health insurance benefits) of up to $10,000 paid during the COVID-19 crisis. The credit covers wages paid or incurred from March 13, 2020, through December 31, 2020.
Other relief measures for businesses include:
In addition, the CARES Act corrects a drafting error from the Tax Cuts and Jobs Act (TCJA). The correction will retroactively allow businesses to immediately expense qualifying interior improvements of buildings, rather than depreciate the costs over the 39-year life of the building. Some businesses may decide to file amended returns for prior years to take advantage of this tax-saving opportunity.
For More Information
This is just a brief summary of the CARES Act. We’ll share additional details on the provisions that will affect you or your business in future blogs. In the meantime, contact us with any questions during this challenging time and check our Coronavirus Resource Center for the latest developments.