On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”). The Cares Act is the largest and most expensive emergency relief package in history. The Cares Act allocates $2 trillion in an effort to mitigate the mounting fallout from the spread of COVID-19. The measure provides direct financial aid to American families, payroll and operating expense support for small businesses, loan assistance for distressed industries, and direct stimulus to healthcare and hospitals. This letter covers the major highlights of the Care Act.
- All U.S. citizens and residents who are not dependent on another taxpayer and have a work-eligible Social Security Number are eligible to receive a one-time payment from the government in response to COVID-19. Individuals who make $75,000 or less ($112,500 for head of household and $150,000 for married couples) will receive a one-time payment of $1,200 ($2,400 for married couples), plus $500 for each dependent child in the household. The checks start to phase down after those limits and disappear completely for individuals making more than $99,000 and couples making more than $198,000.
- Payments are based on your most recently filed tax returns, either 2018 or 2019. Individuals who receive social security benefits but do not file taxes are also eligible. Such individuals do not need to file taxes; their checks are based on information provided by the Social Security Administration.
Expansion of Unemployment Insurance
- Expands unemployment assistance to those not traditionally eligible for benefits who are unable to work as a direct result of the coronavirus public emergency. This program is being called “Pandemic Unemployment Assistance.”
- The expansion includes self-employed persons, independent contractors, and those with limited work history.
- Provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
- If an out-of-work person is receiving the national average of $340 per week, under the new federal program their take-home pay will be $940 per week for up to four months.
- Adds an additional 13 weeks of unemployment benefits to the minimum number of weeks allowed by states.
- Funds the cost of the first week of unemployment benefits for states that choose to pay recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.
Penalty Free Access to Retirement Funds
- Waives the 10-percent early withdrawal penalty for distributions of up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020.
- Income attributable to such distribution from qualified retirement accounts are subject to tax over three years.
- Taxpayers may recontribute the distributed funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts
- The Cares Act waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
- Requires all private insurance plans to cover COVID-19 treatments and vaccine and makes all coronavirus tests free.
- Employers may provide up to $5,250 in tax-free student loan repayment benefits. That means an employer could contribute to loan payments and workers would not have to include the employer contribution as income on their individual tax returns.
SBA Administered – Paycheck Protection Program
- Provides loans of up to $10 million to entities with fewer than 500 employees to be used for payroll costs, rent, utilities, mortgage interest and interest on debt existing prior to February 15, 2020.
- Eligible entities may file applications with an SBA-approved lender.
- Loans are available for up to a 10-year term (amortized) at 4% interest, with six months (and up to one year) deferral of principal and interest payments. Notably, certain SBA requirements are waived.
- Loan forgiveness may be available for amounts actually paid for payroll costs, salaries, benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan.
- For more details on the Paycheck Protection Program Click Here:
Employee Retention Credit for Employers Subject to Closure due to COVID-19
- Refundable payroll tax credits for 50% of wages paid by employers to employees during the COVID-19 crisis.
- Available to employers whose (1) operations were fully or partially suspended due to COVID-19 related shutdown orders, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year.
- The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee paid or incurred from March 13, 2020 through December 31, 2020.
Delay of Payment of Employer Payroll Tax
- Allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees.
- Employers are generally responsible for paying 6.2% Social Security tax on employee wages.
- The provisions require that the deferred employment tax be paid over the following two years, with half of the amount to be paid by December 31, 2021 and the other half by December 31, 2022.
Modifications for Net Operating Losses
- Prior to 2017, businesses that had net operating losses could claim refunds for taxes paid in the prior two years (“loss carry-back”).
- The CARES Act reinstates the carryback period to five years for net operating losses sustained in 2018, 2019, or 2020.
- Hospitals: Earmarks $100 billion for hospitals responding to the coronavirus.
- Drug Access: $11 billion is designated for diagnostics, treatments and vaccines. The bill also includes $80 million for the Food and Drug Administration to prioritize and expedite approval of new drugs.
- Medicine and Supplies: Gives $16 billion to the Strategic National Stockpile to increase availability of equipment, including ventilators and masks.
- Telehealth: Authorizes critical telehealth programs to extend the reach of virtual doctors’ appointments.
- Uninsured Access: Ensures uninsured individuals may receive COVID-19 testing and related services with no cost-sharing in any state Medicaid program that elects to offer such enrollment options.
Social Services Protections
- Child Nutrition: There is $8.8 billion allocated to schools to provide flexible meals for students.
- Food Stamps: $15.5 billion is going to the Supplemental Nutrition Assistance Program (“SNAP”) to cover the expected cost of new application to the program as a result of COVID-19.
- Food Banks: Provides $450 million for food banks and other community food distribution programs.
Gensburg Calandriello & Kanter, P.C. is monitoring the situation on a daily basis. Please contact us with any questions you may have.