How the CARES Act Affects You and Your Business

March 28, 2020—On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act stimulus package to provide emergency relief for those suffering financial hardships. Below is a summary of the more substantial provisions contained in the package that we anticipate will impact you and your business.

As part of the CARES Act, the federal government will soon be issuing stimulus payments to most households.  The stimulus payments are up to $1,200 per individual and $2,400 for those filing a joint return plus $500 for each qualifying child.  These amounts are subject to various phase-outs.   To determine if you are eligible for the stimulus payment,  Forbes has created a calculator at Forbes.com.

Provisions for Businesses

Small Business Interruption Loans: This provision of the Act provides for two types of small business interruption loans. The Economic Injury Disaster Loan (EIDL) program is administered through the Small Business Administration (SBA) and provides low-interest disaster loans of up to $2,000,000 and a maximum repayment term of 30 years.  Paycheck Protection Program loans are administered by lending institutions and capped at $10 million for businesses and nonprofits impacted by the COVID-19 pandemic. Here are some pertinent details on Paycheck Protection Program loans:

• Guaranteed 100% by the SBA (no personal guarantees or collateral required).
• Must be taken out between February 15, 2020, and June 30, 2020.
• May be forgiven for amounts used to cover basic operating expenses such as payroll costs, rent and mortgage, and utilities for up to two months from the loan origination date.
• Have a maximum maturity of 10 years and 4% interest if not forgiven
• Loan payments may be deferred for up to one year.
• Loans forgiven under this provision are not required to be included in income as cancellation of debt.

Refundable Employer Retention Credit: A refundable employer retention credit equal to 50% of qualified wages against quarterly employment taxes, to offset up to $10,000 of wages paid per employee for wages paid after March 12, 2020, and before January 1, 2021. This is available to employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is not available to employers receiving Small Business Interruption Loans.

Net Operating Loss: Net operating loss (NOL) carrybacks can fully offset income for tax years 2018–2020 and may be carried back five tax years.

Defer Payment of Employer Portion of Payroll Taxes: Taxpayers may defer payment of the employer portion of payroll taxes through the end of 2020 (the first 50% of the deferred amount is due by December 31, 2021, and the second 50% is due by December 31, 2022).

Deduct Business Interest Expense: For taxpayers who are subject to the interest limitation rules, they may now deduct business interest expense up to 50% of adjusted taxable income (ATI) for the 2019 and 2020 taxable years (except partnerships, which are still limited to 30% of ATI).

Retroactively Apply the TCJA Correction: A correction to the 2017 Tax Cuts and Jobs Act (TCJA) that allows the 100% bonus depreciation deduction for “qualified improvement property”, which includes qualified leasehold and retail improvement property and qualified restaurant property. Taxpayers can retroactively apply this correction to tax years starting in 2018.

Provisions for Individuals

Penalty-Free Withdrawals from Qualified Retirement Plan Funds: Penalty-free withdrawals from qualified retirement plan funds of up to $100,000 for withdrawals made between January 1, 2020, and December 31, 2020. Distributions can be contributed back to the plan over a 3-year period.

Waiving Minimum Distributions from IRAs: A temporary waiver of required minimum distributions from a retirement plan or IRA for calendar year 2020.