Information on the CARES Act – Passed by The Senate March 25, 2020. Passed by the House and signed by The President March 27, 2020.
As of March 27, 2020, the Senate and House have passed the $2 trillion “Phase Three” COVID-19 economic stabilization package, H.R. 748, the ‘Coronavirus Aid, Relief, and Economic Security Act’ (the CARES Act), that features significant tax provisions and other measures to assist individuals and businesses impacted by the economic effects of the COVID-19 pandemic. The President signed the legislation following the passing in the House.
This COVID-19 economic stabilization package follows the March 6 enactment of a ‘Phase One’ package providing $8.3 billion of funding for health agencies as well as the March 18 enactment of a ‘Phase Two’ relief package. The ‘Phase Two’ legislation included a new business tax credit for certain employers with fewer than 500 employees to provide paid sick leave and paid family and medical leave through the end of 2020. A ‘Phase Four’ bill may be considered as officials continue to assess the effects of the COVID-19 pandemic on public health and the US economy.
Here is what we know. We will continue to update information as more guidance comes on the legislation.
The CARES Act includes the following tax and additional relief provisions (amongst others):
- Net operating loss (NOL) changes:
Allows an NOL from tax years beginning in 2018, 2019, or 2020 to be carried back for five years. The provision temporarily removes the current-law taxable income limitation to allow an NOL to fully offset income. The provision also makes a retroactive technical correction to the 2017 tax reform act to allow NOLs arising in a tax year beginning in 2017 and ending in 2018 to be carried back two years. An NOL limitation applicable to pass-through businesses and sole proprietors is modified to permit utilization of excess business losses for tax years beginning before January 1, 2021.
- Corporate Alternative Minimum Tax (AMT) credit refunds:
Accelerates the ability of companies to receive refunds of AMT credits in tax years beginning in 2019. Alternatively, companies could elect to claim the entire refundable AMT credit in tax years beginning in 2018.
- Section 163(j) changes:
Increases the 30% adjusted taxable income limitation to 50% for tax years beginning in 2019 and 2020. For 2019, this provision does not apply to partnerships and instead partners may deduct 50% of their distributive share of the partnership’s excess business interest in 2020 without regard to Section 163(j). The provision also allows a taxpayer (including partnerships) to elect to use its 2019 adjusted taxable income for its 2020 limitation.
- Employee retention credit:
The CARES Act provides a new temporary refundable 50% employee retention credit for employers subject to full or partial business suspension due to the COVID-19 emergency, or for employers whose gross receipts have significantly declined due to COVID-19 (defined as a reduction in gross receipts of more than 50% when compared to the same quarter in the prior year). The credit is to be applied against the employer’s share of payroll taxes. The amount of qualified compensation (including health benefits) eligible for the credit with respect to any individual employee is limited to $10,000, and the credit is limited to applicable employment taxes on wages paid (reduced by the payroll Work Opportunity Tax Credit, the payroll research credit, and the payroll tax credits under the Families First Coronavirus Response Act). Any excess payments will be refunded.
- Payroll taxes:
Delays payment of applicable 2020 employer payroll taxes from date of enactment through December 31, 2020. Half of the deferred tax is to be paid by December 31, 2021, and the remainder by December 31, 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.
- Aviation excise taxes:
Suspends certain aviation excise taxes, from the date of enactment through December 31, 2020.
- Alcohol excise taxes:
Suspends certain alcohol excise taxes for distilled spirits used in the production of hand sanitizer produced in line with guidance issued by the Food and Drug Administration, from January 1, 2020 through December 31, 2020.
- QIP technical correction:
Makes a technical correction to the 2017 tax reform act to provide a 15-year recovery period for qualified improvement property (QIP). This technical correction would make QIP eligible for bonus depreciation. This technical correction is effective as if enacted as part of the 2017 tax reform act.
- “Recovery rebate checks” up to $1,200 for individuals / $2,400 for married couples / $500 per child:
The one-time recovery rebate will begin phasing out after $75,000 for a single filer and $150,000 for a joint filer and is completely phased out after $99,000 for a single filer ($198,000 for a joint filer) with no children. Phase-out ranges are adjusted for each child on a filer’s return. Rebate checks will be issued by the IRS based on a taxpayer’s 2019 tax return if filed, or otherwise on their 2018 return. A Social Security benefit statement will be used for individuals who have not filed tax returns for either 2018 or 2019.
- Debt Relief:
For six months, SBA is required to pay all principal, interest and fees on all existing SBA loan products including 7(a), Community Advantage, 504, and Microloan programs for six months.
- Special rules for use of retirement funds:
These include a temporary waiver of the 10% early withdrawal penalty for certain distributions up to $100,000 made on or after January 1, 2020 from qualified retirement accounts for coronavirus-related purposes. A temporary waiver of required minimum distribution rules for certain retirement plans and accounts also is provided, among other changes.
- Partial deduction for charitable contributions:
Partial “above-the-line” deduction up to $300 for charitable contributions and modification of limitations on charitable contributions in 2020 for individuals who do not itemize. Additional charitable giving modifications include increases in the limitations on deductions for charitable contributions in 2020 by individuals who itemize, as well as corporations, among other changes.
- Exclusion for certain employer payments of student loans:
An employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The provision applies to any student loan payments made by an employer on behalf of an employee after the date of enactment and through the end of 2020.
- $260 billion for increased unemployment assistance:
This includes up to four months of full replacement wages up to certain limits for individuals who lose a job or are furloughed due to the coronavirus national emergency. A temporary waiver of waiting period requirements is provided and payments are permitted for individuals not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus emergency.
- Paid Sick Leave and Leave requirements:
Modifications to certain recently enacted COVID-19-related paid leave and paid sick leave requirements.
- Medicare Extensions:
The legislation extends through November 30 certain Medicare healthcare provisions that were set to expire on May 22.
Additional relief provisions include:
- Healthcare provisions addressing Medicare and Medicaid services, medical supply shortages, medical device shortages, support for healthcare providers, and telehealth services.
- Assistance to students, including relief for certain post-secondary student loans.
- A temporary foreclosure prohibition for certain federally backed mortgage loans.
- A temporary moratorium on eviction filings for certain rental properties receiving specified federal assistance.
We know additional guidance and information will continue to come out on the CARES Act. We will continue to update you as we navigate the influx of news.