The CARES Act – Key Takeaways

Here are some key takeaways from the Coronavirus Aid, Relief, and Economic Security Act or CARES Act that was recently signed by President Trump.

• The Small Business Administration (SBA) is bolstered up to provide loans to small businesses (fewer than 500 employees). No collateral or personal guarantee is required. Loan amounts will be worth 250% of an employer’s monthly payroll with a $10 million maximum. Partial loan forgiveness is a possibility.
• Unemployment benefits expand under a temporary Pandemic Unemployment Assistance program for those that would not traditionally be eligible, including self-employed workers and independent contractors. This adds $600 per week for up to four months in addition to what beneficiaries would receive normally from the state.
• Every adult will be given $1,200, with an additional $500 per child. Amounts start to phase out at $75,000 for single filers and $150,000 for married couples with a complete phaseout at $99,000 for single filers and $198,000 for married couples. For every $100 of income above the initial threshold, the payment will drop by $5. Amounts will be determined by looking at a person’s adjusted gross income on their most recent tax filing whether that is 2018 or 2019. Filers who elected direct deposit for refunds or payments will likely receive their stimulus checks quicker than individuals who normally elect to receive it via check. More information is available here.
• The bill allows $100,000 distributions from retirement plans without the 10% early withdrawal penalty. Income attributed to those distributions would be subject to tax over three years as opposed to one. Taxpayers will be allowed to repay their retirement plans to make up for money withdrawn to pay coronavirus-related expenses.
• 401(k) loans have been increased from a maximum of $50,000 to $100,000 with the same collateral requirements. For any loans taken out between now until the end of 2020, repayment of those loans is delayed one year.
• Required minimum distributions (RMDs) will be waived for 2020.
• $300 of an individual’s charitable contributions will be allowed to be moved to an above the line deduction, thus allowing filers who normally utilize the standard deduction to benefit from charitable giving.
• The 50% of adjusted gross income limitation will be eliminated for 2020 as it relates to charitable contributions. For corporations, the 10% limit would increase to 25% of taxable income.
• A tax credit is available to businesses with fewer than 100 employees that were forced to suspend operations or that have seen gross receipts fall by 50% from the previous year. The credit is worth up to 50% of wages paid during the crisis to assist in retaining their workforce.
• Payroll taxes for employers can be deferred and paid over the next two years with half due by 12/31/2021 and the other half due by 12/31/2022.
• Net Operating Losses from 2018, 2019, 2020 can now be carried back 5 years. The Tax Cuts and Jobs Act limited the ability to carry back any net operating losses.
• The interest expense limitation will be raised from 30% of taxable income to 50% for 2019 and 2020 filings.
• Group health plans and health insurance carriers will be required to offer preventative services and testing for free as it relates to COVID-19.
• Student loans will suspend payments without interest through 09/30/2020. Collection efforts, including garnishments and tax refund offsets, will stop during this time as well.
• The bill allows a high-deductible health plan (HDHP) with an health savings account (HSA) to cover telehealth services before a patient reaches the deductible. It also allows funds in HSAs and Flexible Spending Accounts (FSAs)to be used to purchase over-the-counter medical products without a prescription from a physician.