CARES Act – Impact to individuals, families and businesses

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The Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed by President Trump on March 27. The bill includes nearly $2 trillion in funds for coronavirus relief for individuals and families, businesses, hard-hit industries, health care, states and municipalities, and more.

The bill includes:

  • $349 billion small business loan program (including nonprofits and physicians)
  • $500 billion for businesses, states and municipalities with breakdowns of $25 billion for designated passenger air carriers, $4 billion for air cargo carriers, $17 billion for businesses in the national security sector, and the remaining $454 billion for businesses, states, and municipalities
  • $130 billion for the medical and hospital industries

The provisions of individuals, families and businesses are as follows.

Provisions for individuals and families

A one-time federal tax rebate will be granted to individuals for $1,200 and $2,400 for married filing joint (MFJ) taxpayers as well as a rebate of $500 per child. The amount is gradually reduced based on adjusted gross income for those making over $75,000 as individuals and $150,000 for MFJ.

In addition to state unemployment benefits, an additional emergency compensation of up to $600 per week for up to 4 months is available for those who have been affected by COVID-19. Additionally, this unemployment benefit was extended to self-employed and partially-employed individuals who would not normally receive unemployment benefits.

For those who themselves or their spouse is diagnosed with COVID-19 or those who experience financial hardship as a result of the virus, early withdrawal of retirement funds is available up to $100,000 with waiver of the 10% tax.

Additionally, required minimum distributions (RMD) on retirement capital are suspended for 2020 for those wanting to keep their capital invested. For single-payer plans, RMDs can be delayed to 2021.

Repayment on student loans through the Department of Education is not required through Sept. 30, 2020, with no accrual of interest.

Telehealth services are available pre-deductible for those with high deductible health care plans.

Forbearance is available for up to 180 days with an optional 180 day additional extension for federally backed mortgage loans without fees, interest or other penalties for delayed payments. Tenants of properties with federally backed mortgage loans may not be evicted nor have penalties charged for failure to pay rent for a 120-day period.

Tax provisions for businesses

Advance refunding of the credit for paid sick and family leave granted by the Families First Coronavirus Response Act is available via the IRS website. A waiver of penalties is in place for employers who fail to deposit payroll taxes in anticipation of a payroll tax credit.

Employers (and some tax-exempt organizations) forced to close due to coronavirus are eligible for an employee retention credit for paying wages to employees who are not working. The business must be fully or partially suspended from government order or who have gross receipts of 50% less than the prior year same quarter.

Employer share of payroll tax for employers and self-employed can be deferred until Dec. 31, 2020, and paid over the following two years with half required by Dec. 31, 2021, and the other half by Dec. 31, 2022.

Losses can be carried back from 2018, 2019 and 2020 to the previous 5 years to allow access to tax refunds for businesses. The 80% income limitation for net operating loss deductions is temporarily repealed for years before 2021, and the excess loss limitation created by the Tax Cuts and Jobs Act is also repealed.

Small business assistance

Under the Act, the Small Business Administration (SBA) was allocated up to $10 billion in 7(a) loans to assist small businesses with maintaining payrolls and debt obligations. These Economic Injury Disaster Loans (EIDL) are available as emergency grants of up to $10,000 to be used for employee sick leave, mortgage or rent, and other overhead, and must be distributed by the SBA within three days of approval. They are first come, first serve until the fund is exhausted. The grants are not required to be repaid even if denied a loan.

Additionally, the SBA will cover the principal, interest and fees currently owed on SBA loans for six months starting with the next payment due date. Loans already in deferment would include an additional six months of pay.

Forgiveness for a portion of federal small business loans may be granted for amounts spent on payroll, sick or family leave, and overhead from Feb. 15 through June 6, 2020.

Paycheck protection was also included in the bill for small businesses who maintain payroll and allows for 8 weeks of cash-flow assistance through 100% federally guaranteed loans used for payroll, mortgage interest, rent and utilities. This is retroactive, allowing businesses to bring back laid off workers.

Honkamp Krueger is continually monitoring the situation and will communicate any changes or clarification as it becomes available for the coming days and weeks.

For more information and answers to your COVID-19 related questions, check out our resource center: https://www.honkamp.com/covid-19-resource-center/