On March 27, 2020, the President signed into law the most recent of three legislative efforts to address COVID-19. The “Coronavirus Aid, Relief and Economic Security Act” or “CARES Act” endeavors to address the current and imminent impact upon the U.S. economy. The CARES Act addresses employee and small business assistance, unemployment insurance augmentation, health care system support and economic stabilization (assistance) for “severely distressed sectors” of the economy. The following are just a few of the Act’s provisions relating to economic assistance.
Qualifying employers may be eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000. Businesses that are interrupted/disrupted due to virus shutdowns, and companies with gross receipts decreases of 50 percent from the same quarter in 2019, may qualify.
Employer Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed each on December 31, 2021 and December 31, 2022.
Tax code accounting changes allow adjustments such as 2018-2020 net operating losses (NOL) to be carried back five years, and for the NOL 80 percent limit to be suspended to fully offset taxable income. To further increase liquidity for businesses with debt (or who may acquire more debt), net interest deduction limitations have been expanded to 50 percent of earnings before interest, tax, depreciation and amortization.
Additional Small Business Administration loans and grants, including emergency grants of up to $10,000, are funded to maintain existing workers and pay rent, mortgage and utilities.
To augment unemployment insurance benefits (UI), the CARES Act provides for an additional $600 per week benefit for eligible UI recipients for up to four months. UI benefits will also be provided for eligible individuals who are self-employed or independent contractors. UI benefits will also be extended 13 weeks beyond the state benefits end-date through December 31, 2020.
Individual or family payments
Qualifying individuals/couples will receive a one-time direct payment from the government—called a “credit.” Threshold eligibility requirements are that the person is a legal resident and is not a dependent (and cannot be claimed by another as a dependent) for the purposes of federal income tax. Payments are:
- $1,200 to taxpayers filing independently;
- $2,400 to married couples filing jointly;
- Another $500 per eligible child under the age of 17.
Income levels based on 2019 reported adjusted gross income (AGI)—or 2018 AGI if no 2019 return has been filed—also determine current eligibility and amount of one’s payment. Payments begin to be reduced by 5 percent of the amount of AGI over $75,000 for individuals, $112,500 for heads of household (single with at least one dependent) and $150,000 for couples filing jointly.
Because decreases in income in 2020 due to the crisis are yet to be determined, individuals who may not qualify based on 2018 or 2019 AGI may qualify for a credit in 2021 for the 2020 tax year. If an individual’s AGI was $100,000 in 2019 and is, therefore, not eligible for a payment currently, they would receive a $1,200 credit on their 2020 tax return if their income in 2020 fell below $75,000.
Social Security and disability recipients who are not required to file will also receive benefits based on their 1099s.
According to the Treasury, taxpayers with direct deposit set up for payments or refunds will receive direct-deposit payments, perhaps within three weeks, and those who do not will receive hard checks in their mail.
Contact your service providers
The Cares Act economic provisions include broad assistance and incentives to shore-up businesses and institutions impacted by the COVID-19 pandemic. Please contact your professional service providers, including accountants, economic advisors and attorneys to evaluate how you and your business may benefit from the Act.