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Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

On Friday, March 27, President Trump signed the Coronavirus Aid, Relief and Economic Security Act. The act contains provisions to help America’s employers, employees and healthcare system among other items.


[Recorded Audiocast] CARES Act

[Recorded Q&A] Families First Coronavirus Response Act

 

The bill provides stimulus funding and emergency assistance to both individuals and businesses that have been impacted by the virus. The new aid package comes the week after President Trump signed the Families First Coronavirus Response Act, which includes mandatory provisions for certain employers to provide paid sick leave and emergency family medical leave to eligible employees. 

Below is a summary of the tax-related provisions included in the CARES Act:

Individual Tax Provisions

  • Recovery rebate checks of $1,200 for single individuals, or $2,400 for married couples filing a joint return, will be sent to taxpayers. In addition, taxpayers will receive $500 for each qualifying child. The income phaseouts for these amounts begin at $75,000 for single filers and $150,000 for joint filers. These limitations initially will be based on taxpayers’ adjusted gross income from their most recently filed federal tax return, with additional complexities tied to the recovery rebate calculation.

  • Starting in 2020, individuals who do not itemize deductions will be allowed an above-the-line deduction for up to $300 of qualified charitable contributions. For individuals who do itemize deductions, the income-based limitation for cash donations to qualified charitable organizations would be temporarily lifted for the 2020 tax year.

  • Individuals impacted medically or financially by COVID-19 can withdraw up to $100,000 from their retirement accounts through the end of 2020, without the 10% early withdrawal penalty. Withdrawn amounts can be recontributed within three years without regard to any contribution limitations. Eligible individuals also can receive a loan from their retirement account for the lessor of $100,000 or the present value of their vested benefits, during the 180 days after the bill is enacted. In addition, affected individuals who already had a loan through their retirement plan that is due by December 31, 2020 would have an extra year to repay the loan.

  • There is a temporary waiver of required minimum distributions from qualified retirement plans for 2020, including for those individuals who turned 70 ½ in 2019 and elected to delay their first RMD to 2020.

  • Employer payments up to $5,250 of employee student loans made after the enactment of the bill and before Jan. 1, 2021 will be excluded from the employee’s income.

Business Tax Provisions

  • This bill includes the creation of an employee retention credit for employers whose operations were impacted by COVID-19 government orders. The credit will be taken against payroll taxes for 50% of an eligible employee’s qualified wages up to $10,000.

  • The employer portion of FICA taxes for the period from enactment up until Jan. 1, 2021 is deferred, with 50% due Dec. 31, 2021 and the remaining 50% due Dec. 31, 2022. Self-employed individuals also will be able to defer 50% of their federal self-employment taxes.

  • Net operating losses (NOLs) created from 2018-2020 can be carried back five tax years to recover federal income tax refunds. In addition, the 80% taxable income NOL limitation will be suspended until 2021, allowing businesses to fully offset taxable income.

  • The excess business loss limitation for non-corporate taxpayers is suspended retroactively from 2018--2020. Under the Tax Cuts and Jobs Act (TCJA), noncorporate taxpayers’ losses were limited to $500,000 for a married-filing-joint filer and $250,000 for all other filers. Taxpayers now can take advantage of off-setting non-business related income without regard to this limitation until 2021.

  • Corporate taxpayers with minimum tax credit carryovers may accelerate recovery of these credits. The TCJA repealed the alternative minimum tax for corporate taxpayers, but many still had minimum tax credit carryforwards from prior years. The TCJA allowed for these credits to offset regular tax and 50% of the remaining uncredited balance to be refundable for tax years 2018-2020, with 100% being refundable in 2021. Taxpayers no longer will have to wait until 2021 to claim a refund for their remaining minimum tax credit carryover balance.

  • The 30% limitation on deductibility of interest expense under Section 163(j) is increased to 50% of adjusted taxable income for tax years 2019 and 2020. Given that many businesses impacted by COVID-19 likely are to have a lower taxable income in 2020 when compared to 2019, a provision included allows taxpayers to elect to use 2019 adjusted taxable income in their 2020 interest limit computation.

  • A technical error under the TCJA known as the “retail glitch” that treated qualified improvement property as 39-year property ineligible for accelerated bonus depreciation has been corrected.

  • The 10% income-based limitation for deductions of cash donations is raised to 25% for corporate taxpayers for tax years ending after December 31, 2019.

It is also worth noting, on March 20, 2020, the IRS issued Notice 2020-18 providing for an automatic postponement of time to file federal income tax returns and make federal income tax payments. 

If you have any questions, please contact your Rehmann advisor.


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Published in COVID-19, Tax

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