Cares Act update as of March 28, 2020

Among the many provisions outlined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the following highlights are some of the most pertinent. We will continue to provide additional information as it becomes available. Note that as of 1:30 PM on Friday, March 27, 2020, the House had voted to approve the CARES Act. The Senate had already approved it on Wednesday, March 25. President Trump has signed it as well.

"Paycheck Protection" loans will be administered by the Small Business Administration (SBA) to help employers cover payroll costs and certain other costs. The covered period for loans is February 15, 2020 through June 30, 2020. Loans are to be made both thru banks with SBA connections and the SBA directly.  

Eligibility for the Paycheck Protection loans is limited to businesses with not more than 500 employees. The employer must have had employees on payroll and paid wages and payroll taxes as of February 15, 2020 in order to be eligible for the loans. Hotels, restaurants, and other food service providers will be considered on a location-by-location basis, so each operation will qualify if it has 500 or fewer employees. The normal affiliation rules will not apply in this instance.

Use of the loans is limited to payroll costs, healthcare costs, rent, utilities, and other debts incurred by the business. Note that employee leave payments are excluded from standard payroll costs. Employee leave payments are, however, eligible for a credit through the recently enacted Families First Coronavirus Response Act. We will send additional information on this in a separate email.

The loan amount available to each employer is based on a formula. The amount available will be the lesser of:

Loan forgiveness is possible under certain circumstances. The amount forgivable correlates to the amount of qualifying costs spent during an eight-week period starting on the date of the origination of a covered loan. Qualifying costs include:

The loan may be reduced if the employer:

In order to incentivize employers to use the loans to pay payroll and other expenses, rather than laying off employees, the reductions just outlined will be waived if the employer were to re-hire all employees laid off (going back to February 15, 2020) or to increase the previously-reduced wages. This must be done no later than June 30, 2020.

An Employee Retention Tax Credit is available in the form of a refundable payroll tax credit for 50% of the wages paid by employers. It is important to note that this credit is not available to employers that receive the small business "paycheck protection" loan above.

The Employee Retention Tax Credit applies to wages between March 13, 2020 and December 31, 2020 under two circumstances:

The credit goes toward the first $10,000 of compensation per employee, including healthcare costs. For businesses with more than 100 employees, the credit can be claimed for those employees who are retained but not currently working due to the crisis. For businesses with 100 or fewer employees, the credit can be claimed for all employee wages.

There is also a Payroll Tax "Holiday" for employers. Employers may defer payment of the employer's portion of Social Security taxes owed through December 31, 2020. The deferral means that 50% of this payroll tax must be paid by December 31, 2021 and the remaining 50% will be due by December 31, 2022. Note: that this is not available if the employee takes the payroll loans described earlier.

For self-employed taxpayers, they too can elect to defer 50% of the self-employment tax that would ordinarily be owed. This must be paid following the same guidelines as businesses above.

Financial assistance to individuals will be available as follows:

For U.S. residents, the general provision stipulates stimulus checks amounting to $1,200 for individual taxpayers and $2,400 for taxpayers filing joint income tax returns. Families will get an additional $500 for each child. It is important to note that this money is not taxable because it is considered a credit against your tax liability.

The amount received by individual taxpayers is based on their Adjusted Gross Income (AGI) in 2019, if their 2019 return has already been filed; otherwise, the 2018 tax return will be used to calculate these amounts. The full amounts will be available to individual taxpayers making $75,000 or less, jointly-filing taxpayers making $150,000 or less, and heads of household making $112,500 or less. The final amount to which a taxpayer is entitled will be based on 2020 AGI. Returns for 2019 or 2018 are being used solely to get checks out quickly to taxpayers. For those who may be eligible for a larger rebate based on their 2020 income or family situation, the credit will be adjusted once their 2020 return is filed. The same will hold true for those receiving an excessive stimulus check because their 2020 income turns out to be higher than 2019 or 2018, and the excess amount will have to be refunded.

There is a 5% per dollar reduction when AGI exceeds $150,000 for joint filers, $112,500 for heads of household, and $75,000 for all other taxpayers. Based on these numbers, stimulus checks are completely phased out at $198,000 for joint filers, $146,500 for heads of household, and $99,000 for all others.

For COVID-19 related purposes, individuals will also be able to take an early withdrawal from a retirement account up to $100,000 per retiree without the standard 10% early withdrawal penalty. Tax will still be due on this disbursement, but the disbursement will be subject to tax over three years instead of being due entirely in 2020. Additionally, the taxpayer may re-contribute the funds within three years without regard to that year's cap on contributions. Note that the tax is computed as though the distribution was received in equal installments spread over three calendar years.

There is also a change related to charitable contributions made in 2020. Taxpayers who do not itemize will be allowed to deduct $300 of cash contributions from their total income, so AGI will be reduced by that amount. For those who itemize, all contributions will remain on their Schedule A as normal, but the cash contributions limit has been increased to 100% of AGI, from the previous 60%. Also, corporate donors have an increased limit to 25% of their taxable income. 

We will continue to compile and send out e-blasts with the most up-to-date information. Please feel free to let us know at any time if you have any additional questions.