The CARES Act – Economic Relief for Businesses and Individuals

Certain taxpayers who qualify will receive a refund of $1,200 ($2,400 for joint filers) plus an additional $500 per qualifying child. This refund begins to phase out when a taxpayer’s adjusted gross income (AGI) reaches $75,000 for single filers, $112,500 for Head of Household filers and $150,000 for married taxpayers who file a joint return. The credit is not available to taxpayers whose AGI is greater than $99,000 for single filers, $136,500 for Head of Household filers and $198,000 for joint filers. 

To qualify for the credit, taxpayers and any qualifying child(ren) must have a valid social security number. Nonresident aliens, individuals who may be claimed on another person’s return, estates and trusts are not eligible for this credit. 

The refund is an advance credit that is based on a taxpayer’s 2019 filed income tax return or 2018 filed tax return if 2019 has not yet been filed. For taxpayers who have not filed a tax return for these two years, the IRS may use information from their 2019 Social Security benefits to determine their refund.

 Taxpayer’s who receive less than the $1,200 credit due to the AGI limits above may be eligible for an additional tax credit on their 2020 taxes based on their 2020 adjusted gross income. Taxpayers who file a joint return in 2019 but file separate returns in 2020 will be deemed to have received half of the credit on each separate return.  

Per the CAREs Act, the Secretary of Treasury will disburse refunds payable as soon as possible but no later than December 31, 2020. Refunds may be issued electronically for accounts authorized by taxpayers on or after January 1, 2018 or by mail. 

Once the refund if disbursed, taxpayers will receive a notice no later than 15 days sent to their last known address notifying them of the following:

• Method by which payment was made

• Refund amount

• IRS contact where they can report any failure to receive payment

The Act now allows individuals to take an above-the-line charitable contribution deduction and modifies limitations on cash contributions 

Taxpayers who do not itemize deductions will be eligible for an above the line deduction of up to $300 deduction for cash donations made to a qualified charitable organization. The Act also temporarily suspends certain limitations on Charitable Contributions during 2020. Notably, the Act suspends the 60% limit on Cash contributions which means that depending on a taxpayer’s contribution base, up to 100% deduction could be permitted. 

The 10% early withdrawal penalty for withdrawals from retirement plans will be waived for affected individuals.  

Individual taxpayers affected by the coronavirus pandemic may now take distributions from vested amounts during 2020 and be exempt from the 10% early withdrawal penalty up to $100,000. These funds also do not have to be included in income immediately. The Act instead allows inclusion in income to be spread over three years. The CARES Act also includes provisions that make it easier to borrow from 401k and similar plans, raising the limit from $50,000 to $100,000, with certain limitations on the borrowing timeframe and extension of the repayment period.  

Businesses that are concerned about labor costs, one of the largest expense items for many, will now receive assistance. Employers affected by the COVID-19 pandemic who retain employees on their payroll during the pandemic will have access to streamlined SBA loans. A portion of the loans may be eligible for forgiveness if certain criteria are met, including keeping employee headcount at certain levels. Certain employers who retain employees in accordance with the provisions of the Act may also receive a 50% credit against payroll taxes related to eligible employees’ wages for the remainder of 2020, subject to certain limitations. 

The CARES act also provides relief for businesses in the utilization of business losses, modifying the complex limitation rules related to Section 461(l). Additionally, the Act amends Section 163(j), allowing certain entities to deduct business interest expense for 2019 and 2020 up to 50%, an increase from the previous level of 30% of adjusted taxable income, with provisions that allow for certain elections to be made. Other business tax areas affected by the CARES Act include carryback of net operating losses, alternative minimum tax credit refunds and qualified improvement property. 

One of the most important areas of the CARES Act is the area of loans that will now be available for businesses that meet certain criteria.   

Economic Injury Disaster Loan Program – These loans, build on the existing SBA Disaster loan program and are intended to cover economic injury such as loss of revenue in a declared disaster zone as a result of the disaster (note – all 50 states, and certain territories have been declared disaster areas for purposes of this program). These loans define a small business as one with up to 500 employees and are intended to cover losses that are due to the declared disaster, not due to a downturn in the economy or other reasons. Applicants will be expected to complete an SBA loan application and provide certain other tax and financial information. 

Paycheck Protection Loan Program – The Paycheck Protection Program allows for loans up to $10 million based on a specified formula and is available to existing small businesses up to 500 employees. These loans are intended to cover business costs, including payroll costs, based on a maximum employee salary limit. The funds can also be used cover employee benefits, mortgage interest payments, rent, utilities and other costs. Paycheck protection loans have a maximum interest rate of four percent and payments can be deferred for no less than six months and up to one year. Borrowers can expect to have to make certain good faith representations that they have been impacted by COVID-19 as well as use of the funds. 

Taxpayers are encouraged to consult with their advisor as they assess how the new law may impact their situation.  Our tax team at Stone is reviewing and interpreting provisions of the Act to assess its impact on our clients and business contacts. Please contact us with your individual and business questions and/or concerns. You can count on us as your trusted advisors to draw on our experience and expertise to help guide you through these unprecedented times.