A Summary Of The Coronavirus Aid, Relief, And Economic Securities Act (Cares Act)
Last Friday, President Trump signed into law the largest stimulus bill in American history, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the COVID-19 coronavirus in the United States. Although the program’s price tag is $2.2 trillion, the economic impact is expected to approach nearly $7 trillion over the course of several economic cycles. Some of the key provisions include:
One-Time Financial Relief Payments
- All U.S. residents (meaning those that file with an ITIN are excluded, unless they have military service) with adjusted gross income up to $75,000 ($150,000 for married couples) would get a $1,200 ($2,400 for couples) “rebate” payment. They are also eligible for an additional $500 per qualifying child. The payments would start phasing out for earners above those income thresholds and would not go to single filers earning more than $99,000; head-of-household filers with one child, more than $146,500; and more than $198,000 for joint filers with no children.
- The federal government will use previous tax information to determine the amount tax units will receive. If the Internal Revenue Service already has bank account information for a tax unit, it will transfer the money via direct deposit based on the recent income-tax figures it has (2018 or 2019 if filed already).
- People who don’t pay taxes, such as those with very low incomes, may be hard to reach the way the program is designed.
- An excellent FAQ article by the New York Times that goes into greater detail can be found HERE.
- $250 billion to extend the unemployment insurance program by expanding eligibility and offer workers an additional $600 per week for four months, on top of what state programs pay ($450 per week in California) to make make up for 100% of lost wages.. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers. The final agreement provides an extra month of unemployment benefits than what Senate Republicans had originally sought.
- Again, the New York Times article goes into greater detail on UI.
Tax Cuts for Businesses: CPA Practice Advisor have compiled the following data summarizing the tax cuts for businesses.
- A refundable 50 percent payroll tax credit for businesses affected by the coronavirus, to encourage employee retention. Employers would also be able to defer payment of those taxes if necessary. This retention tax credit is for eligible employers that continue to pay employee wages while their operations remain fully or partially suspended as a result of specific COVID-19-related government orders
- Loosened tax deductions for interest and operating losses
- Suspension of penalties for people who tap their retirement funds early
- Tax write-offs to encourage charitable deductions and encourage employers to help pay off student loans
Provisions that impact small business most
Employee Retention Payroll Tax Credit
- Employers who are at risk for closure due to COVID-19 can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for an employer whose operations were fully or partially suspended due to a COVID-19 related shut-down order from an appropriate governmental authority, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year
- The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee
- This credit is also available to nonprofit organizations
- Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit
Delay of Employment Tax Payments
Deferral of the employer portion of payments of certain payroll taxes
- The Act allows employers and self-employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020. Fifty percent of the deferred tax payments will be due by December 31, 2021, and the remaining portion due by December 31, 2022. Businesses who have debt forgiven from Payroll Protection Program loans (covered below) are not allowed to delay their payments
Net Operating Loss/Excess Business Loss Changes
- Modification of net operating loss (NOL) and limitation on losses rules and deduction limitation on business interest
- The Tax Cuts and Jobs Act limited net operating loss deductions. The CARES Act has amended those provisions to allow net operating losses incurred in 2018, 2019, and 2020 to be fully deductible, without the 80% limitation. The net operating losses from 2018, 2019, and 2020 are also allowed to now be carried back five years to allow businesses to claim refunds of taxes paid in prior years
- Owners of pass-through entities are no longer subject to excess business loss provisions for 2018, 2019, and 2020. They will be able to take full advantage of pass-through losses, as available
Business Interest Deduction
- The Tax Cuts and Jobs Act had limited the deductibility of business interest to 30% of taxable income. The allowable deduction under the CARES act has been increased to 50%
Qualified Improvement Property
- Businesses will be able to write off all of the costs of certain interior renovations as 15-year property and eligible for expensing in nonresidential real property instead of using straight-line depreciation over a 39-year period
- Qualified improvement property technical correction, allowing qualifying interior improvements of buildings to be immediately expensed rather than depreciated over 15 years
The Paycheck Protection Program will provide nearly $350 billion in loans and loan guarantees for the covered period of February 15, 2020, through June 30, 2020. Note that the use of PPP eliminates the use of SBA Economic Injury Disaster Loan (EIDL) below.
- It will cover payroll costs (up to annual amounts of $100,000); continuation of group health care benefits; employee salaries, commissions, or similar compensation; mortgage payments; rent; utilities; and interest on any other debt obligations incurred before the covered period
- It will extend eligibility to companies of 500 employees or less and 501(c)(3) nonprofits, veterans’ organizations, and tribal small business concerns
- Sole-proprietors, independent contractors, and other self-employed individuals may also participate
- Loan forgiveness is available up to the principal amount of the financing
- Loan forgiveness would be reduced for employers who lay-off workers or reduce employee compensation except where employers rehire workers or pay additional wages to tipped workers
- Loan forgiveness is available for payroll costs, mortgage interest rent, and utility payments
- Forgiven loan amounts will not be included as gross income
Below are the high points on the Stimulus Loans/Grants only (Who, What, When, Where and How). Always trust an authoritative source, not this post that summarizes the facts.
- WHO is eligible: Businesses with less than 500 employees. Multi-location restaurants with more than 500 employees, but no single location with more than 500 employees will be eligible
- WHAT Loan Amount: 2.5 times your average monthly payroll costs limited to $10 million. 10-year loan with an interest rate of 4.0% or lower. No prepayment penalties. (Further definition of payroll costs will be defined, but 1099 contractors are included in this calculation). Loan Forgiveness is included: the amount of the loan used to pay for payroll, rent, utilities, and mortgage interest from February 15, 2020, through June 30, 2020, will be forgiven. The debt forgiven will not be considered taxable income.
- WHEN: Mnuchin said in a press conference that these loans should be available Friday, April 3, 2020
- WHERE: Any FDIC insurance bank or federally insured credit union will be able to provide these loans. These loans will be SBA loans, but you do not need to go through an SBA bank or the SBA website to access these loans. We do know which banks will be participating at this time
- HOW: We don’t know what documentation will be required precisely but be prepared to have payroll tax returns and payroll reports from 2019 and YTD 2020 available to calculate your eligibility and the amount of the loan. We recommend that you start getting your payroll records together so you can get in front of the line once this program starts
Additionally, there is no personal guarantee required on any of the loans. They are 100% insured by the Federal Government.
While as of today there are no federal rules, regulations, guidelines, or application forms yet for most of these loan programs, UWCA is tracking this as closely as possible and will provide guidance on the process as it becomes clear.
For more information, including a side by side comparison of the two loan programs please visit HERE, created by the Certified Public Accounting and Consulting firm KROST. Information is subject to change, as federal guidelines and applications become available.
Housing & Homelessness
- More than $7 billion for affordable housing and homelessness assistance programs. This funding will help low-income and working-class Americans avoid evictions and minimize any impacts caused by loss of employment and child care or other unforeseen circumstances related to COVID-19.
- $25 billion in aid to transit systems to help protect public health and safety while ensuring access to jobs, medical treatment, food and other essential services.
Community Development Block Grants
- More than $6.5 billion in federal funding for Community Development Block Grants, the Economic Development Administration and the Manufacturing Extension Partnership to help mitigate the local economic crisis and rebuild impacted industries such as tourism or manufacturing supply chains.
- $15.85 billion to help veterans, including to help treat COVID-19, purchase test kits, and procure personal protective equipment for clinicians, and $590 million in dedicated funding to treat vulnerable veterans, including homeless veterans and those in VA-run nursing homes.
- $450 million for The Emergency Food Assistance Program (TEFAP) to assist food banks across the country.
- $425 million to increase access to mental health services in communities.
- $400 million in election assistance for the states to help prepare for the 2020 election cycle, including to increase the ability to vote by mail, expand early voting and online registration and increase the safety of voting in-person by providing additional voting facilities and more poll workers.
Shortfalls of the Bill: As important as the relief package is for Americans, it also has several shortfalls that will require attention in the near future. The Center on Budget and Policy Priorities (CBPP) have highlighted 3 key shortalls to consider going forward as future bills are considered:
- Uninsured: The package fails to include measures either to expand health coverage or to cover COVID-19 treatment for those who are uninsured. Such steps are essential now. The omission of these measures stands in contrast to a proposal Speaker Pelosi made earlier this week, which would help uninsured people get coverage through Medicaid or the marketplaces and cover COVID-19-related costs for those who still slip through the cracks.
- SNAP Benefits: The legislation also fails to increase SNAP benefits. Such an increase, provided in the last recession, is important to help struggling families put food on the table and help provide the boost to consumer spending that the economy needs. The temporary SNAP benefit increase enacted in the Great Recession was both critical to preventing far larger increases in poverty and effective as economic stimulus.
- Lack of State Flexibility: In addition, the package does not include flexible funding for states to help very poor families with children avert crises, as Congress did in 2009-2010, when it provided modest but vital funding for what was known as the TANF (Temporary Assistance for Needy Families) Emergency Fund. That fund provided resources to states to help more families meet basic needs and avoid emergencies that could put them on a downward spiral, as well as providing subsidized jobs to both parents and young people to help them stay connected to the labor force. The next legislative package should include such an emergency fund, with its purposes broadened to respond to the needs of both poor families with children and other poor individuals and households.
For more information, please visit their article.