On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (The CARES Act.) The CARES Act contains a host of tax measures as part of a $2.2 trillion aid package. Below is an overview of some of the tax provisions for individuals and businesses included in The CARES Act.
• Recovery rebates of up to $1,200 for individuals, or $2,400 for joint filers, plus $500 for each qualifying child.
• Waiver of the 10% penalty on early withdrawals of up to $100,000 from qualified retirement plans for coronavirus-related distributions.
• $300 above-the-line charitable contribution for individuals who do not itemize. Limitations on individual cash charitable contributions are also modified.
• Exclusion of up to $5,250 from income for employer student loan repayment assistance.
• Retroactive repeal of the excess loss limitations for individuals, allowing them to utilize the full amount of losses from pass through businesses and sole proprietorships (previously limited to $500,000 for married filing jointly and $250,000 single and trust taxpayers.)
• Unemployment compensation benefits – Individuals qualifying for unemployment due to layoffs from COVID-19 will be paid $600 per week in addition to their state payments for four months. In addition, under certain circumstances, the federal government will fund up to 13 weeks of additional unemployment benefits.
• Establishment of the Paycheck Protection Program (PPP) loans to assist small businesses (with fewer than 500 employees) in continuing to pay employees and cover business expenses. For up to 8 weeks, this program can be used to cover the entire cost of payroll and other eligible expenses. These loans may be eligible to be forgiven to the extent the employer retains workers and proceeds are used for eligible expenses such as payroll costs. Please note that employers taking advantage of this PPP loan provision will not be eligible for the employee retention credit or other payroll rebate or refund provisions of the CARES Act.
• Employee retention credit – A refundable payroll tax credit for 50% of wages up to $10,000 per eligible employee paid by eligible employers to certain employees during the COVID-19 crisis, starting on March 13, 2020.
• Payroll tax deferral – A Deferred payment of the employer portion of the 6.2% social security tax on wages from March 27, 2020 through the end of 2020.
• Temporary repeal of the 80% taxable income limitation for net operating losses (NOLs) and modification of rules relating to NOL carrybacks, allowing for a five-year carryback period for tax years including 2018, 2019 and 2020.
• Corporate minimum tax credit (MTC) is accelerated.
• Limitation on the deductibility of interest expense is temporarily increased from 30% to 50%.
• The Act included a technical correction to classify qualified improvement property as 15-year property, eligible for 100% bonus depreciation.
These key provisions, along with many other law changes, are complex. To learn more, please consult the following resources:
Please don’t hesitate to contact your tonneson + co representative with your specific questions regarding how The CARES Act impacts individuals and businesses, and we will be happy to walk you through your options and potential tax savings.
We also encourage you to visit our Coronavirus Resource Center to stay up-to-date on all COVID-19 news and to access helpful links.