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March 30, 2020

U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

On March 27, 2020, the US Treasury Secretary, Steven T. Mnuchin, announced that Congress has passed the Coronavirus Aid, Relief, and Economic Security Act “CARES Act” of $2 Trillion, the largest economic package in American history.

The CARES Act provides relief to individuals and businesses impacted by the coronavirus pandemic: 

Individuals – $560 billion estimated

  • Cash payments: Estimated to total $300 billion. Most individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. That means a family of four earning less than $150,000 can expect to receive $3,400. The payments start to phase out when earnings exceed the threshold levels and are eliminated for individuals making more than $99,000 and couples making more than $198,000.  The cash payments are based on either your 2018 or 2019 tax filings. 

  • Retirement Plans: The bill waives the 10% penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions.  The bill also waives all required minimum distributions for 2020, regardless of whether the taxpayer has been impacted by the pandemic.  

  • Extra unemployment payments: Estimated to total $260 billion. The bill makes major changes to unemployment assistance, increasing the benefits and broadening who is eligible.  The legislation also adds 13 weeks of additional unemployment insurance. This will result in an additional $600 per week from the federal government on top of whatever base amount a worker receives from the state. The increased payments will last for four months.

  • Self-employed people, freelancers and contractors who can’t apply for unemployment, are now covered under this new bill for temporary Pandemic Unemployment Assistance program through the end of this year to assist those who lose work as a direct result of the public health emergency.

  • Tax returns: The filing deadline has been extended to July 15, 2020. 

  • Student loans: Employers can provide up to $5,250 in tax-free student loan repayment benefits. This means an employer can contribute to loan payments and workers will not be required to include the amount as income.

  • Insurance coverage: The bill requires all private insurance plans to cover COVID-19 treatments and vaccine and makes all coronavirus tests free.

  • Charitable Contributions: The bill allows an individual to claim an unlimited itemized deduction for 2020 charitable contributions, which is normally limited to 50% of Adjusted Gross Income “AGI”, even if the individual does not itemize deductions.  

Businesses – $877 billion 

  • All businesses: The bill establishes a fully refundable tax credit for businesses of all size that are closed or distressed to help them keep workers on the payroll. The credit against employment taxes is equal to 50 percent of qualified wages paid to employees who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts.  The credit is limited to $10,000 in aggregate per employee for all quarters.  The credit applies to wages paid after March 12, 2020, and before January 1, 2021.  

  • Net Operating Losses “NOL”: The bill allows for a five-year NOL carryback arising in 2018, 2019, or 2020. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of a NOL carryback. The CARES Act also repeals the 80% limitation for taxable years beginning before January 1, 2021.

  • Prior Alternative Minimum Tax “AMT” Credits: The CARES Act amends the AMT so that for taxable years beginning in 2019, the AMT refundable credit amount is equal to 100% of the excess of the minimum tax credit for the taxable year.  

Big Corporations – $500 billion

  • Airlines: About $58 billion is allocated to help airlines stay open, and cover employee wages, salaries and benefits for passenger air carriers, cargo air carriers, and airline contractors.

  • Stock buyback ban: Any company receiving a loan under the program is barred from making stock buybacks for the term of the loan plus one year.

  • Reporting requirements: All loans, their terms and any investments or other assistance provided by the government must be publicly disclosed.

  • Oversight: The bill creates a special inspector general to oversee pandemic recovery. That person, along with a special committee, would provide oversight of all loans and other uses of taxpayer dollars.

Small Businesses – $377 billion

  • Emergency grants: The bill provides $10 billion for grants of up to $10,000 to provide emergency funds for small businesses to cover immediate operating costs.

  • Forgivable loans: There is $350 billion allocated for the Small Business Administration to provide loans of up to $10 million per business. Any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June. 

  • Relief for existing loans: The bill provides $17 billion to cover six months of payments for small businesses already using SBA loans.

  • Payroll Tax Deferral: The CARES Act defers the payment of payroll taxes so that half of the 2020 deferred payroll taxes are due on December 31, 2021, and the remainder due on December 31, 2022. 

  • Business Interest Expense Limitation: The limitation is increased from 30% to 50% of a taxpayer’s adjusted taxable income for 2019 and 2020.  

The above content is believed to be accurate as of the date of posting. Canadian and U.S. tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained herein.