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Clarifying the CARES Act

CARES Act Provisions

April 22, 2020

With new information coming at us daily it is difficult to really understand the elements of the CARES Act (S. 3548), which was signed into law on Friday, March 27, 2020. The $2.2 trillion coronavirus economic stimulus bill is meant to provide relief for individuals and businesses negatively impacted by the COVID-19 pandemic. Here’s a look at some of the key provisions included in the bill and what they may mean for you.

Individual Taxpayers

Direct Payments

Individuals began receiving stimulus payments on Monday, April 13, 2020. If you qualify and would like to check on the status of your payment, the IRS has created this site.

Charitable Contributions

The CARES Act allows for up to $300 per taxpayer ($600 for a married couple) in an above-the-line deduction (expenses that are deducted to calculate your adjusted gross income) for charitable gifts made in 2020 and claimed on taxes in 2021. This means that you can lower your income tax bill by donating, even if you take the standard deduction on your taxes.

Required Minimum Distributions (RMD)

Penalties and interest for failing to take your RMDs for 2020 have been waived.

Early Withdrawal Penalty

The 10% early withdrawal penalty is waived for individuals negatively impacted by the coronavirus for distributions up to $100,000 from retirement accounts and attributable income would be taxed over three years.

Business Taxpayers

Paycheck Protection Program

The U.S. Small Business Administration (SBA) will oversee a program to administer potentially forgivable loans for qualifying businesses. The goal of the program is to provide cash-flow assistance to employers who maintain their payroll during the coronavirus pandemic. If the funds are used as mandated, the loans will be forgiven and not taxable.

SBA Economic Injury Disaster Loan Program

This is a program already in place with the SBA but has been expanded through December 31, 2020 to help businesses during the coronavirus pandemic. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.

Employee Retention Tax Credit

Employers subject to full or partial closure because of COVID-19 are eligible to receive a 50% refundable credit on qualified wages. The refundable credit cap is $10,000 per employee and will be applied against employment taxes for each quarter that has a significant decrease in gross revenue compared to the same quarter in 2019.

Employer Payroll Taxes

Employers and self-employed individuals will be able to defer payments of the employer share (6.2% of employee wages) of Social Security payroll taxes that would have been owed from March 27, 2020 through December 31, 2020.

Modifications for Net Operating Losses

The use of net operating losses (NOLs) for corporate and noncorporate businesses is expanded under the new law. NOLs will be able to offset income without the current 80% taxable income limitation when carried forward and will be allowed to be carried back up to five years to offset prior years income.

Modifications of Limitation on Business Interest

The CARES Act increases the business interest expense limitation from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020.

Modification of Limitations on Charitable Contributions

The new law increases the limit on the deduction for charitable contributions from 10% to 25% of a corporation’s taxable income.

Defined Benefit Plan Relief

Single employer defined benefit pension plans can delay contributions due during 2020 until January 1, 2021.

New information and guidance are released on a daily basis. For full details on the CARES Act, please visit: congress.gov/bill/116th-congress/senate-bill/3548/text.

The material and information contained here is for general informational purposes only. You should not rely upon the material as a basis for making any business, legal or other decisions. Please contact your advisor for detailed information.

You can count on The Partnership to continue to share accurate and fact-based updates as well. See more on COVID-19 here.

Dave Hove

Dave Hove is a senior tax partner at LWBJ with more than 30 years of tax consulting experience. Dave leads the firm's tax department, including its state, local and international tax practices. He has extensive experience working with nonprofits and corporations in the manufacturing, technology, construction, distribution and service industries.