The world is simultaneously facing twin emergencies as we are under attack from both the medical and economic front. These two crisis are intertwined. While the experts in healthcare and science are feverishly working to slow the outbreak and reduce the resulting deaths, leaders all over the globe are also doing their best to keep their economies from collapsing.   

Here in the United States, this week’s headlines are carefully following the progress of the government’s passage of the most significant stimulus package ever proposed.

The stimulus bill, known by the acronym CARES Act, addresses all the above concerns by providing economic support in response to the COVID-19 (coronavirus) outbreak.

Business owners are eager for the financial boost that can help them get passed the immediate and long term obstacles. On their behalf, this Act establishes, and provides funding for, forgivable bridge loans and provides additional funding for grants and technical assistance.

Like their corporate colleagues, nonprofits are also looking at the Act for funding that will enable them to continue offering their crucial services. Individuals are waiting eagerly at their mailboxes for their distribution checks which help them pay the rent, buy groceries and pay other bills especially with the deep disruptions to their paychecks.     

There are many components and provisions included in the CARES Act. We have included the highlights here for your review. This is not a complete report, but is intended to provide an overview for you. If you have questions regarding your business, nonprofit or personal issues, please contact us!

Business Tax:

  • Retention credit – Credit is for employers who had a disruption in work due to the closure of business because of the coronavirus.  A credit of 50% for qualified wages against their employment tax for each quarter.
    • Employers receiving SBA loans are not eligible
    • Employers of 100 or fewer employees are eligible
    • The credit is capped at $10,000 per employee
    • Update
      •  Do not claim the credit on first quarter return for 2020
      • Instead, include 50% of wages paid in first quarter with 50% of wages paid in second quarter of 2020 on second quarter employment tax return

Charitable deduction - Increase in the limitation from 10% to 25% for certain charitable contributions.

  • Net Operating Loss (NOL)
    • 80% income limitation suspended
    • NOLs generated 2018-2020 can be carried back five years
  • Payroll taxes – There will be a two-year delay of payment for payroll taxes for employers.  First half of payment due by December 31, 2021 and the second December 31, 2022
  • Losses for noncorporate taxpayers – The loss deduction limitation is modified for passthrough entities and sole proprietors so they can deduct losses arising in 2018-2020
  • Bonus depreciation – The Act allows 100% bonus depreciation for certain qualified property now includes 15- and 20-year property
  • Interest deduction limitation – The limitation increases from 30% to 50% of adjusted taxable income for 2019 & 2020

Individual Tax:

  • Recovery checks – Most Americans will receive a check up to $1,200 for single taxpayer and up to $2,400 for married filers, in addition to $500 per child.  These recovery checks begin phasing after $75,000 for a single taxpayer, $112,500 for head of household and $150,000 for married filers
  • Charitable deduction – a deduction for charitable contributions will be allowed up to $300 for standard filers and the 60% AGI limitation will be suspended
  • Retirement withdrawal – waiver of 10% penalty for distributions up to $100,000 for coronavirus related withdrawals
  • RMD – required minimum distribution does not apply to 2020
  • Education payments – student loan repayments are added to the exclusion of $5,250 of taxable income per employee
  • AMT Credit – taxpayers will be able to get 100% of AMT credits

We hope this information has given you some perspective regarding the CARES Act and what its likely impact will be. Please email or call us with any questions!