On March 25th, 2020, the much anticipated and debated Coronavirus Aid, Relief, and Economic Security Act was passed unanimously by the Senate. Now the legislation moves to the House for passage and then the President’s desk for enactment which will hopefully occur by the end of the week.
While many of the details related to implementation and timing are still pending, Phase Three of the economic stimulus package, nicknamed the “CARES Act”, has a far-reaching impact by providing over $2 trillion in emergency aid to the U.S. economy. Below is a breakdown of how the $2 trillion is to be allocated and highlights pieces of legislation that will have the biggest impact to our clients.
The $2 trillion in a Nutshell:
- $250 billion to make unemployment insurance available to more people, temporarily increase weekly benefits and extend the duration of the benefits to 39 weeks.
- $301 billion in direct payments to individuals.
- $349 billion in loans to small businesses to help those companies with payroll, rent, loans or utilities. There’s also potential for businesses to have these loans to be forgiven!
- $500 billion pool for loans, guarantees and aid to businesses, states and municipalities damaged by the crisis.
- $29 billion in grants and an additional $29 billion in loans for the airline industry.
- $150 billion in direct aid to states, based on population size.
- $221 billion in tax benefits for businesses including deferral of payroll taxes and NOL claims.
- $340 billion in spending which includes hospitals, veteran’s care and public transit.
Highlights for Individuals:
Checks to Taxpayers
The bill provides for direct payments of $1,200 for individuals / $2,400 for joint filers and $500 per child to American households. There are no provisions for future direct payments in the event the economic disruption lasts into the later spring. The direct payments are phased out starting with $75,000 for individuals and $150,000 for joint filers.
The deal would extend the duration of jobless benefits to 39 weeks from 26 available in most states and includes a supplemental $600 per week for the first four months, with the supplement payment available through July 31. These benefits would be extended to contract workers, freelancers, sole proprietorships and other nontraditional workers, who lack benefits in some states.
The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access to up to $100,000 of their retirement savings without a 10% penalty. The law doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. You still are not able to take a loan from your traditional IRA. For retirees, the law suspends for 2020 the mandatory distributions the government requires most to take from tax-deferred 401(k)s and individual retirement accounts starting at age 70½.
Net Operating Losses
Individuals now have the ability to carry back net operating losses from 2018, 2019, and 2020 to prior years’ profits and claim refunds. The net operating losses can be carried back five years from the taxable year of such loss. Previously net operating losses beginning in 2018 could only be carried forward and were subject to limitations.
Additional Standard Deduction and Charitable Contribution Limits
For those taxpayers who are not eligible to itemize their deductions, they would be able to claim up to $300 for charitable contributions in addition to the standard deduction they receive. For those who itemize, the bill temporarily suspends limits on cash donations for individuals. For individuals, the 60% adjusted gross income limitation would be suspended for 2020.
This bill temporarily bans landlords from filing evictions on most renters (this would not extend to vacant or abandoned properties). The bill also temporarily bans most foreclosures and provides additional options for mortgage forbearance for federally backed mortgage loans.
Highlights for Businesses:
Small Business Loans
The deal allows businesses and nonprofits with less than 500 employees to apply through qualifying banks for loans backed by the Small Business Administration. The loans can be partially or fully forgiven if you comply with various requirements. The loans would be capped at $10 million and require no collateral or personal guarantees.
Net Operating Losses
Businesses now have the ability to carryback net operating losses from 2018, 2019, and 2020 to prior years’ profits and claim refunds. The net operating losses can be carried back five years from the taxable year of such loss. Previously net operating losses beginning in 2018 could only be carried forward and were subject to limitations.
Payroll Tax Deferral and Credit
Employers can elect to defer paying the employer’s share of 2020 payroll taxes. They could then make half of those payments by December 31, 2021, and the other half of the tax liability by December 31, 2022. In addition, the bill creates a new tax credit for retaining employees. Employers who hold onto employees during the pandemic are eligible for a refundable payroll tax credit. The 50% credit would offset the employer’s share of Social Security taxes up to $10,000 of qualified wages per employee per quarter. For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to the COVID-19. For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit
As we are operating in a rapidly evolving COVID-19 situation, the information contained herein is the best available at the time and as such intended for informational purposes only. Accordingly, the applicability and relevancy of this information should be reviewed with your various legal, accounting, human resources or other applicable service providers.