President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on Friday, March 27, 2020. The purpose of the CARES Act is to provide relief for individuals and businesses who have been negatively impacted by the COVID-19 pandemic. We have provided a summary below on the provisions of the Act.

 

Individual provisions:

Filing deadlines for all April dates changed to July.

 

Advance Credit Rebates

Recovery Rebates for individuals; $1,200 ($2,400 for a joint return) plus $500 per qualifying child. Limitations apply based on AGI, reduced payments if income exceeds $75,000 ($150,000 joint).  The rebate is completely phased out for incomes exceeding $198,000 for joint files and $99,000 for single filers.  The rebate will be based on 2019 tax returns, or 2018 tax returns for individuals who haven’t filed their 2019 tax returns.  They may be delivered electronically if the taxpayer had authorized a deposit of a tax refund or federal payment.  The rebate is an advance payment of a 2020 credit.

 

Retirement Account Provisions

COVID-19 related retirement distributions can be made by eligible individuals in amounts up to $100,000 without being subject to the 10% penalty.  The distribution can be repaid within 3 years and still be treated as rollover or the taxpayer can choose to spread the income inclusion over a 3-year period, starting in 2020.

 

401k loan limits increase from $50,000 to $100,000, up to the full present value of nonforfeitable benefits. 

Required Minimum Distributions from certain retirement accounts are suspended for 2020.

 

Charitable Contribution Provisions

Allowance for a $300 above-the-line deduction for charitable contributions during 2020 for individuals who do not itemize deductions.  Contributions to supporting organizations and donor-advised funds are not qualified contributions for this deduction.

 

Charitable contributions limited to AGI for 2020.

 

Business provisions:

Payroll Tax Deferral 50% of employer payroll tax deposits can be deferred until December 31, 2021 and the remainder deferred until December 31, 2022.  Deferral does not apply to employers with small business loan debt forgiven under the Act.

 

Employee Retention Credit 50% payroll tax credit for wages paid by eligible employers to certain employees during the COVID-19 crisis.  Eligible employers, including non-profits, are those whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings.  The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit. The term “”wages”” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.  The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

 

Temporary Modification of NOL Rules and Limits Waiver of the 80% of AGI rule for NOLs applying to tax years beginning after December 31, 2017.  NOLs created in years 2018, 2019, or 2020 can be carried back 5 years.

Charitable Contribution Increased Limits Increase the corporate charitable contribution deduction limit from 10% to 25% of taxable income for 2020 tax year.  A deduction for food inventory contributions would be increased to 25% from 15%.

 

Bonus Depreciation Correction Technical correction for qualified improvement property to qualify as 15-year property for depreciation purposes, making it eligible for 100% bonus depreciation for property placed in service after December 31, 2017.

 

Other Relief

• Excess business loss limitations delayed until after December 31, 2020.
• Corporation credit for prior year AMT is treated as refundable.
• Business interest limitation increased to 50% for years beginning in 2019 and 2020.

 

Any accounting, business, or tax advice contained in this communication, including attachments and links to outside sources, is not intended as a thorough analysis of specific issues, nor a substitute for a formal opinion, nor was it written to be used to avoid tax related penalties.