Cares Act Summary - Individuals & Small Businesses
By Rajesh Laungani, MBA, CFP®
The Senate and House of Representatives passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, bringing roughly $2 trillion of relief into the economy to help keep businesses and individuals afloat during this unprecedented time. The bill in its entirety can be read here, but we wanted to summarize some key points of the bill that we believe may impact our clients:
- Direct Payments to Individuals and married couples: based on their income. Individuals earning up to $75,000/year will be eligible for $1,200 and married couples whose adjusted gross income (AGI) is less than $150,000 a year will be eligible for $2,400. (The payment amount falls by $5 for every $100 in income over $75,000 and $150,000 respectively, with no payments for individuals earning greater than $ 99,000 ($ 198,000 for Married Filing Jointly)
- Expanded Unemployment Benefits: The program extends unemployment insurance and expands eligibility. On top of what state programs pay, the CARES act provides an additional $600 per week for four months and extends UI benefits from 26 weeks to 39 weeks.
- Health: All testing and potential vaccines for COVID-19 will be covered at no cost to patients.
- Retirement Plans: The 10% tax penalty on premature distributions of up to $100,000 from qualified retirement accounts has been waived for 2020 (retroactive to January 1). The regular taxes on these withdrawals can be paid over three years. In addition, any funds withdrawn may be re-contributed to the plan within three years regardless of contribution limits for that year. Also, Required Minimum Distributions (RMDs) from IRAs and 401(k) plans (at age 72) are suspended for 2020. The loan limit for 401(k)s is increased from $50,000 to $100,000.
- Charitable contribution deduction: Taxpayers may deduct up to $300 of charitable contributions which will be an above the line deduction, if they do not itemize deductions (only 8% itemized in 2018). This new rule applies to all years and not just 2020. The AGI limit on gifts to public charities in increased from 60% to 100% for 2020.
For Small Businesses’
- PPP SB7(a) Forgivable Loan: The Paycheck Protection Program provides forgivable Small Business Administration (SBA) loans to businesses with less than 500 employees to help prevent layoffs and business closures during the crisis. Meant to cover approximately 2 months of specified Payroll expenses. If they maintain payroll, the portion of the SBA loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.
- Employee Retention Credit: Up to $ 10,000 per FTE
- Employers may delay payment of their portion of 2020 payroll taxes until 2021 or 2022.
- The Net Operating Losses 80% income limitation is being modified. For business losses arising in 2018, 2019 and 2020, a five-year carryback is allowed. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback.
- Business Interest Limitations have been amended from 30% to 50% of adjusted taxable income based on EBITDA for 2019 and 2020 (2020 in the case of partnerships). Taxpayers may elect to use 2019 income in place of 2020 for computation.
- Limitations for charitable contributions deduction for businesses have been increased from 10% to 25% of taxable income
- EIDL (Economic Injury Disaster Loan): While this existing program is NOT part of the CARES act, employers may apply for both, the EIDL and PPP, but cannot use proceeds for the same purpose.