2020 CARES Act Summary

In the midst of recent events, United States legislature has passed the CARES (Coronavirus, Aid, Relief and Economic Security) Act to provide relief to taxpayers, both individuals and businesses, and incentives to charitable givers. Below is a summary of some of the more popular provisions.

Provisions for Individuals:

Filing and Payment Deadline: The deadline has been automatically moved from April 15 to July 15, 2020, for any person who must file federal income tax, whether directly impacted by COVID-19 or not.

Stimulus Payment: A one-time payment will be made to all U.S. residents equal to $1,200 for individuals, $2,400 for joint filers, and an additional $500 per child under 17. Your adjusted gross income (or 2018 if 2019 hasn’t been filed) must be under $75,000 for individuals and $150,000 for joint filers, in order to receive the full amount.

Retirement: Individuals can withdraw up to $100,000 from qualified retirement plans and IRAs without the 10% withdrawal penalty for individuals who have been diagnosed, or whose spouse or dependent has been diagnosed, with COVID-19, or who are experiencing financial misfortune from COVID-19 related furlough, termination, quarantine, etc. Loan limits on 401ks have been increased. Loans must be repaid to avoid penalties in most cases. RMDs are waived for 2020.

Charitable Contributions: The Act increases the limit on charitable giving deductions from 60% to 100% of an individual’s adjusted gross income. This only applies to cash gifts to public charities. For those who don’t itemize, a $300 per year above the line deduction is permitted.

Health Savings Accounts: In 2020, you can use your HSA and FSA to purchase over-the-counter medications. Additionally, high deductible healthcare plans may be used to cover medical expenses before the deductible is reached.

Unemployment: The Pandemic Unemployment Assistance Program (PUAP) increases unemployment benefit payments as well as extends the period during which benefits can be claimed. PUAP increases this period by up to 13 weeks (to a total of up to 39 weeks) and raises the benefits received by $600 per week for individuals who are receiving regular unemployment benefits.

Provisions for Small Businesses:

Filing and Payment Deadline: The federal income tax return and payment deadline has been automatically postponed to July 15, 2020.

Paid Leave: Employers with less than 500 employees and more than 50 employees are required to provide paid sick leave and expanded family and medical leave if the employee is diagnosed with COVID-19 or providing care to a dependent with COVID-19.

Small Business Interruption Loans: For businesses with less than 500 employees, Small Business Administration (SBA) loans were increased to a maximum amount of $10 million through the “Payment Protection Program” with the option to defer payments for six months. Any portion of the loan used for essentials during the first eight weeks will be forgiven, as long as the employer retains or rehires all employees.

Economic Injury Disaster Loans: EID Loans, while not a new type of loan, have been expanded to cover pandemics as a form of disaster. You can request an emergency $10,000 grant as part of this loan process which can be paid in as little as 3 days after the application has been processed.

Employee Retention Credit: Employers can receive a payroll tax credit for 50% of new employee wages during COVID-19, up to the first $10,000 in wages. The credit reduces the employer portion of the Social Security tax.

Payroll Tax Deferral: Employers can choose to pay the 6.2% social security tax on employee wages over the next two years, half by December 31, 2021, and the other half by December 31, 2022.

Current SBA Loan Deferrals: Current SBA loan holders will have all payments on their loans automatically suspended for six months.

Interest Expense: The deductibility of interest expense has been raised from 30% of operating income to 50% of operating income.

Student Loan Payments: Employers who have employees encumbered with student loans are now able to the employees’ loan payments, up to $5,250, without having to include these payments in the employees’ taxable income.

Charitable Contributions: Like with individuals, the Act increases the limit on charitable giving deductions from 10% to 25% of net income for corporation. This also only applies to cash gifts to public charities.

Disclaimer: KPP is not a tax consultant and your CPA should be your primary contact in regard to specific tax strategies. These comments are a high-level summary of the CARES Act. A full reading of the Act can be found at: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text