KEEPING WORKERS PAID AND EMPLOYED, HEALTH CARE SYSTEM ENHANCEMENTS AND ECONOMIC STABILIZATION:
CARES ACT-CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT
I have put together some of the highlights of the CARES Act and its effects on businesses and individuals. If you are interested in learning more, please reach out to me on my website to schedule a free consultation or email me at rsmith@reinersmithlaw.com.
BUSINESSES:
Paycheck Protection Loan Program:
Emergency loan program for small businesses
In effect through 12/31/2020
Small businesses, non-profits, Tribal business concerns with less than 500 employees
Eligibility for sole-proprietors, independent contractors and other self-employed individuals
No personal guarantee and non-collateralized loans
Loans to be administered by SBA authorized banks
Federally guaranteed loans and forgivable up to 8 weeks of eligible payroll costs, rent, utilities, mortgage interest and some employee benefits.
Principal forgiven is non-taxable as discharge of indebtedness income
Covers eligible payroll costs, employee benefits, rent, mortgage interest and utilities
Retroactive to February 15, 2020, to include previously laid-off employees
No payments for first 12 months of loan
10-year loan maturity and 4% interest rate
Borrowers pay no loan fees and no pre-payment penalties
Allows deferral of existing SBA 7(a) loans
Maximum loan amount $10 million
Loan amount will be 2.5 times the average monthly eligible payroll costs including some employee benefits
Payroll Tax Deferral:
Employers and self-employed can defer payment of employer’s share of social security tax
Payroll tax can be deferred and paid over the next two years, with half of the deferred amount due by 12/31/2021 and the other half of deferred amount due by 12/31/2022
Employee Retention:
50% refundable payroll tax credit for wages paid to employees during the Coronavirus pandemic
Employers are eligible if: (1) business operations were shut down or partially suspended because of a COVID-19 related shutdown or (2) gross receipts declined by more than 50% as compared to the same quarter from the prior year
Credit will be provided for the first $10,000 of wage compensation, including health benefits paid to an eligible employee, and for wages paid from 3/13/2020-12/31/2020
Applies to employers with more than 100 full-time employees and those with less than 100 full-time employees
Expansion of Economic Injury Disaster Loans (EIDL):
Eligibility for EIDL loans to include Tribal businesses, cooperatives, employee stock option plans with fewer than 500 employees or any individual operating as a sole proprietor or an independent contractor during the period covering 1/31/20-12/31/20
SBA will waive any personal guarantee on advances of loans less than $200,000, the 1 year in business requirement and the credit elsewhere requirement
SBA will approve and offer EIDL loans based solely on applicants credit score or use of an appropriate alternative method for determining an applicant’s ability to repay
Emergency grant created to allow an eligible entity who has applied for an EIDL loan due to COVID-19 to request an advance on that loan up to $10,000, which the SBA must distribute within 3 days of application
SBA will verify that the applicant entity is eligible for an EIDL loan, which shall take the form of a certification under penalty of perjury by the applicant that they are eligible
Advance payment may be used for maintaining payroll, providing paid sick leave, meeting increased costs to obtain materials, making rent or mortgage payments and repaying obligations that cannot be met due to revenue losses
Applicants must not repay the advance payments, even if subsequently denied for an EIDL loan
Miscellaneous Business Tax Provisions:
Net operating loss (NOL) carryback period to five years for NOL’s in 2018, 2019 or 2020
Corporate alternative minimum tax (AMT) will be immediately refundable
Business interest expense increases to 50% (from 30%)
Corporate income limitation on charitable contributions increases to 25%
Non-corporate taxpayers’ limitation on losses modified
INDIVIDUALS:
Unemployment Insurance Expansion:
Extends up to 39 weeks Pandemic Unemployment Assistance to self-employed, independent contractors, those with limited work history and others who are unable to work as a direct result of the COVID-19 pandemic
Additional $600 per week payment to each eligible recipient
To be eligible the employee must self-certify that he or she is unable to work and has been unable to work because:
the employee is unable to reach the place of employment and doesn’t have a job or cannot get a job because of the COVID-19 pandemic;
the employee’s place of business has closed as a result of the COVID-19 pandemic;
the employee has quit his or her job as a direct result of the COVID-19 pandemic;
the employee was unable to begin employment because he or she cannot get to the job because of the COVID-19 pandemic;
the employee is now the main source of income in his or her home because the head of household has died as a result of COVID-19; and
the employee qualifies under any other category set forth by the Secretary of Health and Human Resources
Otherwise eligible employees cannot receive Pandemic Unemployment Assistance during the period in which such employee is receiving paid sick leave or other paid leave benefits from an employer
Direct Payments to Individual Taxpayers:
Up to $1,200 payments to qualifying adults (up to $2,400 per married couple) and $500 for each child
Full payments will be made to individuals who earn less than $75,000 in adjusted gross income and married couples earning $150,000 or less in adjusted gross income
Payments are reduced incrementally ($5 for each $100 that a taxpayers income exceeds the phase-out threshold) if income exceeds these amounts, and entirely phased out at $99,000 adjusted gross income for individuals, $146,500 for head of household files with one-child, and $198,000 adjusted gross income for joint filers with no children
Income thresholds are based on 2019 income tax returns if a return has been filed, and if no return has been filed for 2019, 2018 tax return will be used
Direct payments will be made from the Treasury Department (IRS) and will be sent electronically if a taxpayers bank account information is on file with the IRS (i.e. refund paid to a bank account or payment directly withdrawn from a bank account) or mailed to those taxpayers whose bank account information is not on file with the IRS
Special Rules for Use of Retirement Funds:
10% early withdrawal penalty is waived for distributions up to $100,000 from qualified retirement accounts for COVID-19 related withdrawals made on or after 1/1/2020
Any income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.
A “COVID-19 related distribution is one made on or after 1/1/2020 and before 12/31/2020 to an individual: (i) who is diagnosed with COVID-19 by a CDC approved test; (ii) whose spouse or dependent is so diagnosed; (iii) who experienced adverse financial consequences due to quarantine, furlough, lay off or reduced work hours due to COVID-19; (iv) who experiences adverse financial consequences for being absent from work due to lack of child care because of COVID-19; or (v) who satisfies other factors as determined by the Treasury Secretary
Qualified plan loans are increased to a maximum amount of the lesser of $100,000 and 100% of a participant’s vested account balance
Loans are available during the 180-day period beginning on the date of the enactment of the CARES Act, with repayment delayed for one year and repayments shall be appropriately adjusted to reflect this delay and any accrued interest during such delay in repayment
Temporary waiver of required minimum distribution rules for tax-qualified retirement plans and IRA’s, which applied to any distributions that are required to be made in the calendar year 2020.
Charitable Contributions:
Above-the-line deduction allowed for qualified charitable deductions up to $300 against a taxpayer’s adjusted gross income in 2020, as opposed to an itemized deduction
A qualified charitable contribution is one: (i) made in cash; (ii) for which a charitable contribution deduction is otherwise allowed; and (iii) that is made to certain publicly supported charities.