The CARES Act: An Overview
On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. This $2 trillion emergency relief package is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis. Here is a brief summary of some of the major provisions.
Recovery Rebates
Most individuals will receive a direct payment from the federal government. Technically, this is a 2020 refundable income tax credit. Taxpayers will reduce the amount of the credit available on their 2020 return by the amount of the advance refund they receive.
The rebate amount will be calculated based on 2019 tax returns filed (2018 returns in cases where a 2019 return hasn't been filed) and sent automatically via check or direct deposit to qualifying individuals.
The amount of the recovery rebate is $1,200 ($2,400 if married filing a joint return) plus $500 for each qualifying child under age 17. Recovery rebates are phased out for those with adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return. To calculate the amount you might receive, check out this calculator that the AICPA Published: CARES Act Stimulus Calculator .
While details are still being worked out, the IRS has stated that the payments will begin in the next three weeks and will be distributed automatically. Social Security beneficiaries who are not typically required to file tax returns will not need to file to receive a payment.
Unemployment Provisions
An additional $600 weekly benefit to those collecting unemployment benefits, through July 31, 2020
An additional 13 weeks of federally funded unemployment benefits, through the end of 2020, for individuals who exhaust their state unemployment benefits
Unemployment benefits through 2020 for many who would not otherwise qualify, including independent contractors and part-time workers
Student Loans
The legislation provides a six-month automatic payment suspension for any student loan held by the federal government; this six-month period ends on September 30, 2020
Under already existing rules, up to $5,250 in payments made by an employer under an education assistance program could be excluded from an employee's taxable income; this exclusion is expanded to include eligible student loan repayments an employer makes on an employee's behalf before January 1, 2021.
No Required Minimum Distributions in 2020
Required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs will not apply for the 2020 calendar year. This includes inherited IRAs. So, if you do not need the distribution to fund living expenses, we would recommend skipping the distribution in 2020.
The 10% early-distribution penalty tax that would normally apply to distributions made prior to age 59½ (unless an exception applies) is waived for retirement plan distributions of up to $100,000 relating to the coronavirus. Also, limits on loans from employer-sponsored retirement plans are expanded, with repayment delays provided
Business Relief
Many of the provisions of the new legislation were put in place to help businesses. They include:
Employers may defer paying the employer portion of Social Security payroll taxes through the end of 2020 and may pay the deferred taxes over a two-year period of time; self-employed individuals are able to do the same
An employee retention tax credit is now available to employers significantly impacted by the crisis and is applied to offset Social Security payroll taxes; the credit is equal to 50% of qualified wages up to a certain maximum
Net operating loss rules are expanded
Deductibility of business interest is expanded
Provisions relating to specified Small Business Administration (SBA) loans increase the federal government guarantee to 100% and allow small businesses to borrow up to $10 million and defer payments for six months to one year; self-employed individuals, independent contractors, and sole proprietors may qualify for loans
Other Provisions
There is an above the line charitable deduction on the 2020 tax return (not to exceed $300).
Prior Relief Provisions
Signed into law roughly two weeks prior to the CARES Act, the Families First Coronavirus Response Act (FFCRA) also included relief provisions worth noting:
Requirement that health plans cover COVID-19 testing at no cost to the patient
Requirement that employers with fewer than 500 employees generally must provide paid sick leave to employees affected by COVID-19 who meet certain criteria, and paid emergency family and medical leave in other circumstances
Payroll tax credits allowed for required sick leave as well as family and medical leave paid
There is likely to be a steady stream of guidance forthcoming with details relating to many of these provisions, so stay tuned for more information. We're here to help and to answer any questions you may have.