On March 27, 2020, President Trump signed into law H.R. 748, also known as the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or the “Act”), which provides $2 trillion of Government funding to help individuals, families, and businesses financially weather the storm of the COVID-19 pandemic.
Please note, to be as comprehensive as possible, this Tax Alert includes a short summary of non-tax provisions, such as unemployment insurance benefits and small business loans, in addition to tax provisions. We are available to answer your questions, however on non-tax provisions it may be more appropriate for you to speak with an attorney and/or human resources specialist.
Small Business Administration (“SBA”) Loans
• Small businesses and non-profits with no more than 500 employees (per physical location) are eligible to receive an SBA loan of up to $10 million.
o Number of employees includes both full-time and part-time.
o Exact amount of loan = 2.5 x average payroll costs this time last year. Payroll costs is broadly defined and may include independent contractors.
o Covered loan period is between February 15, 2020 and June 30, 2020.
o Payments deferred for 6-12 months. Interest rate is no more than 4% payable over 10 years in excess of amount forgiven.
o Loans may be used for wages, payroll costs, paid leave, costs related to the continuation of group health benefits, mortgage payments, rent, utilities, and interest on other debts.
o Loans are available for certain sole proprietors, independent contractors, and self-employed individuals; must provide documentation such as payroll tax filings, 1099s, and income and expenses.
o No collateral or personal guarantees are required.
• Some loans may be eligible for forgiveness to the extent of the borrower’s payroll costs, mortgage interest, rent, and utility payments made during an 8-week period after loan origination date.
o Amount of loan forgiveness is reduced to the extent employees are laid off or
salaries are reduced by more than 25%.
o Borrowers who previously laid off employees will not be penalized (in the form of
less loan forgiveness) for having reduced payroll if the employees are rehired by
April 26, 2020.
• Temporary unemployment benefits for those who do not traditionally receive it (i.e., selfemployed,
independent contractors, etc.)
• Payments to states to reimburse nonprofits, government agencies, and Indian tribes for
half the costs they incur through the end of 2020 to pay unemployment benefits.
• An additional $600 per week payment to each unemployment recipient for up to 4 months.
• Funding to pay the cost of the first week of unemployment for states that choose to pay
recipients as soon as they become unemployed instead of the 1-week waiting period.
• An additional 13 weeks of unemployment benefits through the end of 2020 to help those
who remain unemployed after state unemployment benefits are no longer available.
• Funding to support “short-term compensation” programs, in which employers reduce
employee hours instead of lay-offs; states may reimburse employers 100% of the costs
incurred and employees may receive a pro-rated unemployment benefits from the state.
• US residents with AGI up to $75,000 (or $150,000 for married persons) are eligible for a
rebate of $1,200 (or $2,400 if married) plus an additional $500 rebate per child.
o Amount reduced by $5 for each $100 of income that exceeds threshold;
o Completely phases out when income exceeds $99,000 (or $146,500 for head of
household, one child; or $198,000 for married, no kids);
o Eligibility based on 2019 income (if return already filed), otherwise 2018 income;
but may have to pay it back if 2019 income exceeds threshold.
• Waives 10% early withdrawal penalty for distributions of up to $100,000 from qualified
retirement accounts for certain corona-virus related purposes made on or after January 1,
2020; income on distributions taxed over 3 years.
• Greater flexibility for loans from certain retirement plans for coronavirus-related relief.
• Temporary waiver of required minimum distribution (“RMD”) rules for 2020 for certain
retirement plans and accounts.
• Additional above-the-line deduction of up to $300 of cash contributions to charities (for
taxpayers who do not itemize).
• Increased limitations on charitable deductions for individuals (who itemize) and
o For individuals, 60%-of-AGI limitation for cash contributions to a public charity is
suspended for 2020 (i.e., such contributions may be fully deductible);
o For corporations, 10% limitation is increased to 25% of taxable income;
o Limitation on deductions for contributions of food inventory increased from 15% to
25% for 2020.
• Employees may exclude from gross income the amount of student loan repayment
assistance received from employers, up to $5,250 annually, through the end of 2020.
Employee Retention Credit
• Payroll tax credit of 50% of wages paid by employers to employees during the COVID-19
crisis (i.e., March 13, 2020 through end of 2020);
o Credit only available to employers whose: a) business operations have been
suspended (fully or partially) due to the crisis; or b) gross receipts have declined
by more than 50% compared to last year’s quarter.
o If 100 or fewer full-time employees, all wages qualify regardless of whether
employee was furloughed.
o For employers with more than 100 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.
o Maximum credit of $5,000 per employee (based on maximum qualified wages of
$10,000 per employee, including health benefits).
o The term “wages” includes health benefits but does not include amounts
considered for emergency paid leave under the Families First Act.
o Tax-exempt organizations are eligible for the credit.
o This credit is not available if the employer is also receiving an SBA loan under the
Paycheck Protection Program (described in this Tax Alert above).
Payroll Tax Deferral
• Employer can defer their share of 6.2% Social Security tax; deferred tax must be paid over
2 years (half by end of 2021 and remainder by end of 2022).
• Self-employed persons may delay deposit of half their self-employment tax liability under
Net Operating Loss (“NOL”) Modifications
• NOLs arising in 2018, 2019 or 2020 tax years may be carried back 5 years.
• Temporary removal of 80% taxable income limitation for NOL deductions taken in 2018,
2019 and 2020; so, NOLs can fully offset income.
• NOLs can fully offset income; can amend prior year returns to get refunds.
Modified Limits on Excess Business Losses
• Repeals excess business loss limitation for pass-through entities and sole proprietors for
2018, 2019, and 2020 tax years.
• Can use business losses to reduce other income.
Corporate Alternative Minimum Tax (“AMT”) Credits
• Accelerates ability for companies to recover corporate AMT credits.
Business Interest Expense Modifications
• Deductible amount of business interest expense increased from 30% to 50% of taxable
income for 2019 and 2020, thereby increasing ability to deduct interest paid on loans.
• Taxpayers can elect to use 2019 taxable income to compute the interest limitation for
• For partners in partnerships, 50% of excess 2019 interest limitation can only be used to
offset income in 2020.
Qualified Improvement Property Amendment
• Businesses can write off costs associated with improving facilities instead of having to
depreciate them over 39 years.
• Can file amended return for 2018 to claim 100% bonus depreciation during year of
We will continue to stay abreast of any developments in this area and will send updated Tax Alerts as necessary. For any tax-related questions, please contact any of the following individuals:
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