This information is a limited summary of some of the major provisions of this new law.  Obviously it is complex and extensive.  If you have any questions, please contact our office to further expand on how we may be able to help you and your business.

Congress has passed H.R. 748 which is a $2 trillion coronavirus relief bill that the President signed on Friday. It is referred to as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). The bill includes many significant provisions some of which are summarized below.

  • It calls for a payment of $1,200 to Americans making $75,000 or less ($2,400 for couples filing joint returns) and $500 for each child under 17, to be paid “as rapidly as possible.”
  • It creates the Paycheck Protection Loan Program which greatly expands the eligibility of businesses with fewer than 500 employees, suffering as a result of the COVID-19 pandemic, for SBA loans. The program will allow businesses to borrow money for expenses such as payroll, continuation of health care benefits, mortgage interest obligations, rent and utilities, and interest on debt incurred before the “covered period”, which is February 15, 2020 through June 30, 2020. Eligible businesses include most small companies, non-profits and physician practices. The loans can be forgiven through a process that incentivizes businesses to retain employees. It also raises the maximum amount for such a loan by 2.5 times the business’s average total monthly payroll costs, up to $10 million. The interest rate on loans may not exceed 4%. Your own bank is the best place to start a process to obtain these desirable loans.
  • It enlarges eligibility for unemployment insurance and provides an additional $600 per week on top of the unemployment amount customarily available under state law.  Our current understanding is that there will need to be federal and state agreements before any additional unemployment will be paid.
  • The bill provides temporary relief for federal student loan borrowers, deferring student loan payments through September 30, 2020 without penalty to the borrower for all federally owned loans, which applies to approximately 95% of student loan borrowers.
  • It waives required minimum distributions (RMDs) for 2020.  The waiver applies to company retirement plans, including both traditional and Roth inherited IRAs.  Any 2019 RMD amount remaining and not withdrawn by January 1, 2020 is also waived.
  • It waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and plans for affected individuals.  The tax is due but spread evenly over 3 years.
  • It increases the maximum amount of retirement plan loans to the lesser of $100,000 or 100% of the account balance.  Loan repayments, including interest, can also be suspended for one year.
  • It provides a much needed technical correction to the Qualified Improvement Property depreciation rules by giving the property a 15 year life and making the change retroactive to January 1, 2018.
  • It allows individuals who don’t claim itemized deductions on their tax returns to make cash contributions of up to $300 to qualifying charities and deduct the contribution “above-the-line” in computing adjusted gross income.
  • It allows a one-year only credit against the employer’s 6.2% share of Social Security payroll taxes for any business that is forced to suspend or close its operations due to COVID-19, but that continues to pay its employees during the shut-down. This is not available if an employer takes a paycheck protection loan which becomes forgiven.
  • It alleviates the burden on employers struggling to make payroll by allowing the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of enactment through December 31, 2020, to be paid on December 31, 2021 (50%) and December 31, 2022 (50%). This also is not available if an employer takes a paycheck protection loan and receives foregiveness.
  • It allows business losses from 2018, 2019 and 2020 to be carried back for up to five years.  Additionally, it allows losses carried to 2019 and 2020 to offset 100% of taxable income, as opposed to 80% under the old rules.
  • The old law provided that the amount of “net business loss” an individual may use in a year to offset other sources of income is capped at $250,000 if single; $500,000 if married filing jointly. Any excess loss was converted into a net operating loss, which was subject to more stringent utilization rules. The new legislation, however, puts a temporary halt to the old limitation not only for 2020, but retroactive to January 1, 2018. As a result, taxpayer who found a loss limited by the provision in 2018 or 2019 can file an amended return to claim a refund.
  • The old law limited a business’s ability to deduct its interest expense to 30% of “adjusted taxable income,” with any excess interest expense carried forward. CARES increases the limit to 50% of adjusted taxable income for 2019 and 2020, and perhaps more importantly given that most businesses will not have taxable income in 2020, the business can elect to use its 2019 adjusted taxable income in computing its 2020 limitation.

For more information about this act and how it may affect you and your business, contact our professionals.

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