Welcome to our Blog page. Here, you can read our firm’s latest blog posts about timely tax, accounting and audit issues.

A Summary of the Coronavirus Aid, Relief, and Economic Security Act

Posted by Goldin Peiser & Peiser on Mar 27, 2020 2:21:49 PM

President Trump signed into law, on Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), commonly known as “Phase Three” of coronavirus economic relief. This stimulus package aims to put approximately $2.2 trillion into the economy and into the hands of businesses and individuals.

Top 5 Key Takeaways:

1. Individual Stimulus Payments ("2020 recovery rebate for individuals")

  • $507B in cash goes into the hands of most adult Americans
  • IRS will look at an individual's most recent filed return (in this order - 2019, 2018, and if neither filed based on the Form SSA-1099, SS Benefit Statement)
  • $1,200 per individual or $2,400 if married filing jointly plus $500 for each child under the age of 17
  • Phase-out begins when AGI exceeds $75,000 (if individual/ $150,000 if married)
  • When AIG exceeds the threshold, Americans lose $5 of payment for every $100
  • Payments will be made between now and December 31, 2020
  • Payment is an ADVANCE PAYMENT of a credit that will be computed on the 2020 tax return (the amount a taxpayer will get will ultimately be based on the 2020 data)

Related Recorded Webinar: Overview of the Key Tax Provisions of the CARES Act 

2. Small Business Loans ("Paycheck Protection Loans")

  • $350B in loans have been provided for under Section 7 of the Small Business Act
  • This is for companies with fewer than 500 employees (including sole proprietors and nonprofits)
  • Covered period runs February 15, 2020 - June 30, 2020
  • Guaranteed by the Federal Government through December 31, 2020 (after that date 85% guarantee for loans greater than $150 K)
  • Maximum amount for the loan is 2.5 x the average total monthly payroll costs, or up to $10 million for the 1st year ending on the date the loan was made
  • Maturity is maximum of 10 years and interest rate not to exceed 4%
  • Proceeds to be used to cover payroll, mortgage payments, rent, utilities, and any other debt service requirements
  • Standard fees are waived and NO PERSONAL GUARANTEE is required by the business owner
  • Possible deferment of repayment of the loans is for a period of at least six months, not to exceed a year
  • Under Section 1112 of the Act, the government will pay the principal and interest on a paycheck protection loan for the first six months for which payments are due
  • Employee Retention Credits (see below) - ARE NOT AVAILABLE if a business takes out this loan
  • Delay of Payment of Employer Payroll Tax and Self-employment tax (see below) - ARE NOT AVAILABLE if a business takes out this loan

3. Loan Forgiveness of "Paycheck Protection Loans"

  • Forgiveness will be on tax-free basis
  • Amount is the sum of payments made (for payroll costs, mortgage interest, rent, certain utility payments) by borrower during the 8-week period BEGINNING on the date of the loan
  • To SEEK forgiveness requires the borrower to submit to the lender an application that includes documentation verifying the number of employees and pay rates, and cancelled checks showing mortgage, rent, or utility payments
  • Forgiveness amount CAN BE reduced if the employer:
    • reduces its workforce during the 8-week covered period when compared to other periods in 2019 or 2020, or
    • reduces the salary or wages paid to an employee who had earned more than $100,000 in annualized salary by more than 25% during the covered period

4. Emergency Government Disaster Loan

  • Expands access to Economic Injury Disaster Loans (EIDLs) under Section 7(b)
  • Includes not only businesses with fewer than 500 employees but ALSO sole proprietors and ESOPs
  • There is NO PERSONAL GUARANTEE on loans made before December 31, 2020 below $200K
  • New Emergency Grant was created which allows business that have applied for an EIDL to get an immediate advance of up to $10K. Advance can be used to maintain payroll and not required to be repaid, even if the request for the 7(b) loan is denied.

5. Tax Provisions in the CARES Act

  • Qualified Improvement Property Fix
    • Technical correction made to QIP (Qualified Institutional Placement) – giving it its intended 15-year life, making the change retroactive to January 1, 2018
  • Special Rules for using retirement funds for Coronavirus Costs
    • A "Coronavirus-related distribution" of up to $100K in the year 2020 free from penalty (there are eligibility requirements)
    • Borrowing increased from $50,000 to $100,000 for the 180-day period beginning after the enactment of the Act
  • Changes to Charitable Contributions
    • Non-itemizers can take "above-the-line" deduction for cash contributions up to $300 to certain qualified charities
    • Limits lifted on charitable giving for 2020 (were limited to 60% of AGI, now the Act allows up to 100% of AGI for 2020 - with excess carried over to the next five years)
  • Exclusion from Income of Employer Payment of Employee Student Loan Debt
    • An employer can pay up to $5,250 in 2020 of an employee's student loan on a tax-free basis
  • Employee Retention Credit
    • One-year credit against the employer's 6.2% of SS if it is forced to suspend or close operations due to COVID-19 BUT continues to pay its employees during the shut-down
    • Eligibility in one of two ways
      • operations were fully or partially suspended during any calendar quarter during the 2020 orders
      • business remained open, but during any calendar quarter in 2020, gross receipts for the quarter were less than 50% of the same quarter in 2019
    • Entitled to a CREDIT for each quarter, until the business has a quarter where it's recovered, such that its receipts exceed 80% of what they were for the same quarter the previous year
    • Each eligible quarter the business receives a credit against its 6.2% SS payroll taxes will be equal to 50% of the "qualified wages" paid to EACH employee for that quarter, ending on December 31, 2020
    • If an employer takes out a "paycheck protection loan" - NO employee retention credit will be available
  • Delay of Payment of Employer Payroll Tax and Self-employment tax
    • An employer that incurs its 6.2% of FSS tax in 2020 may
      • defer payment of that tax until 2021 and 2022, but
      • receive an immediate credit against yet-to-be-paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit
    • If an employer takes out a "paycheck protection loan" - NO deferral will be available
  • Changes to the NOL (Net Operating Loss) Rules
    • Losses from 2018, 2019, and 2020, will be permitted to be carried back for up to five years
    • Losses carried to 2019 and 2020 will be permitted to offset 100% of taxable income as opposed to 80%
  • Temporary (and Retroactive) removal of section 461(1) (Limitations on Excess Business Losses of Non-corporate Taxpayers)
    • "Net business loss" an individual may use in a year to offset other sources of income was capped at $250K (if single, $500K if married filing jointly)
    • There is a temporary halt on section 461(1) for 2020 and is retroactive to January 1, 2018.
    • Taxpayer can file an amended return to claim a refund for 2018 and 2019
  • Changes to the Interest Limitation rules
    • Interest expense could be deducted to 30% of "adjusted taxable income" with any excess interest expense carried forward
    • Now increase that limit to 50% of ATI for 2019 and 2020

As always, we are monitoring the every-changing situation and will keep you updated on any and all new developments. 

COVID-19 Resources and Planning Services

Need timely updates and helpful links to COVID-10 disaster relief programs? Visit GPP’s COVID-19 Business Assistance and Resource Center. To learn the best path forward for your business during this challenging time, our COVID-19 Business Advisory and Planning Services Group is ready to assist.

For immediate questions, email CARETEAM@GPPcpa.com

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

Topics: Tax Relief, Coronavirus, Economic Stimulus, CARES Act