President Trump has signed the Coronavirus Aid, Relief and Economic Security (CARES) Act today after it was passed by the House earlier today. The Act includes a historic $2 trillion of aid for Americans and businesses in the wake of the COVID-19 outbreak.
The following are some of the Act’s key provisions:
Relief for Individuals
- Direct payments of $1,200 will be sent to most middle-income and lower-income individual taxpayers ($2,400 for joint taxpayers). The payment amount begins to phase out at $75,000 for singles and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers.
- Expanded unemployment insurance for laid-off workers allows for four months of full pay (typically three). Maximum unemployment insurance benefit has been raised by $600 per week for all workers including self-employed.
- Eligible retirement plan distributions of up to $100,000 will not be subject to the 10% additional tax. The distribution must have been made between January 1-December 31, 2020 by an individual who is diagnosed, has a diagnosed spouse or dependent, or experienced financial consequences as a result of being quarantined, laid off, without childcare or other factors related to COVID-19.
- Required minimum distribution rules are temporarily waived for certain retirement plans.
- Federal student loan payments are postponed without interest accruing through September 30, 2020.
- Homeowners with federally backed mortgages can request loan forbearance for an initial period of 180 days due to financial hardships caused by COVID-19.
Relief for Businesses and Nonprofits
- $367 billion loan program will be available for small businesses and nonprofits. The loans could be forgiven if businesses continue to pay their employees through the crisis.
- Creditworthiness requirements for Economic Injury Disaster Loans (EIDL) have been temporarily eliminated, and $10 billion is being appropriated to the Small Business Administration’s EIDL program to expedite payments to applicants.
- The deadline for depositing employer payroll taxes is deferred and payable over the next two years – half due on December 31, 2021 and half due on December 31, 2022.
- Certain employers are eligible to receive a refundable payroll tax credit of up to $5,000 for each employee on the payroll.
- The Act lowers the amounts that employers must pay for paid sick and family leave under the Families First Coronavirus Response Act to the amounts covered by the refundable payroll tax credit ($511 per day for employee sick leave or $200 per day for family leave).
- Tax-excluded education payments by an employer temporarily include student loan repayments, whether paid to the employee or a lender, of principle or interest on any qualified higher education loan.
- The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), has been expanded to 50 percent of EBITDA for 2019 and 2020.
- The Act provides a technical correction to the Tax Cuts & Jobs Act and designates qualified improvement property as 15-year property for depreciation purposes. This makes qualified improvement property a category eligible for 100% Bonus Depreciation.
Relief for Businesses and Individuals
- Limitations on excess business losses are delayed until 2021.
- Net operating losses (NOLs) earned in 2018, 2019 or 2020 can be carried back five years. The NOL limit of 80 percent of taxable income is also be suspended. Loss limitations are modified for non-corporate taxpayers as well, including rules governing excess farm losses.
Relief for Industries, States and Cities
- $500 billion lending fund for industries, cities and states includes $25 billion for passenger airlines, $4 billion for cargo airlines, and $3 billion for industry contractors.
- Healthcare system will receive more than $150 billion, including funding for hospitals, research, treatment and supplies.
- State and local governments will receive $150 billion to address Coronavirus-related spending shortages.
Charitable Contribution Incentives
- The Act includes a new above-the-line deduction for charitable contributions up to $300. The incentive applies to contributions made in 2020 and can be claimed on tax forms next year.
- The existing cap on annual charitable contributions for those who itemize is lifted, raising it from 60 percent of adjusted gross income to 100 percent. For corporations, the Act raises the annual limit from 10 percent to 25 percent.
Grassi advisors are analyzing the final legislation in depth and will issue additional guidance in each of these areas over the coming days.