CARES ACT OVERVIEW for Individuals

Recovery Rebate for Individuals 

You can think of the recovery rebate as an advance payment of a 2020 tax credit you would typically receive. U.S. residents will receive a full $1,200 rebate ($2,400 married filing jointly) if: They have an adjusted gross income that is not more than $75,000 ($150,000 married filing jointly), a Social Security number, AND cannot be claimed as dependents on another taxpayer’s return.  

Eligible individuals will receive up to $500 per child. For many, no action will be required in order to receive their rebate check. The IRS will be using 2019 tax returns, if filed, or 2018 tax returns, if 2019 is not yet filed. If an individual does not typically file a tax return, the social security benefits Form 1099-SSA may be used instead.  Otherwise, you may need to file a simple tax return to receive the rebate. 

The rebate will be reduced by $5 for every $100 of an eligible individual’s adjusted gross income thresholds. Individuals are not eligible for the rebate if their income exceeds: 

• $99,500 for single 
• OR 146, 500 for head of household filers with one child 
• OR $198,000 for joint filers with no children 

You will receive the payment directly into the bank account used on your 2019 or 2018 return. If direct deposit information is unavailable, the IRS will be releasing information instructing taxpayers what they need to provide to receive payment.  

Additional Notes: 

• If the actual rebate was less than the credit calculated on the 2020 return, the taxpayer will be able to claim the balance of the credit when filing the 2020 return.  
• However, if the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won’t have to pay back the excess. That is because the 2020 credit cannot be reduced below zero (as of right now).  
• IRS will prescribe regulations and other guidance as necessary to carry out the purposes of the credit provision.  

Updated 4/2/2020 at 10:00 AM 

Waivers Related to Retirement Plans & Funds 

For distributions up to $100,000 made on or after January 1, 2020 until December 31, 2020 (from qualified retirement accounts for COVID-19 purposes), the 10% early withdrawal penalty may be waived. Items to note: 

• A distribution from a qualified retirement plan is normally subject to a 10% additional tax unless the distribution meets an exception.  
• A COVID-19 related distribution (defined below) is not subject to the 10% penalty up to $100,000. Income inclusion can happen over 3 years and the amount can be contributed back into the plan within 3 years.  
• The individual, spouse, or dependent must meet one of the below requirements: 
• Be diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC). 
• Experience adverse financial consequences as a result of being quarantined, being furloughed, or laid off. 
• Have work hours reduced due to such virus or disease. 
• Is unable to work due to lack of childcare due to such virus or disease. 
• Closure or reduced hours of a business owned or operated by the individual due. 

Updated 4/2/2020 at 12:00 PM  

Charitable Deductions 

Whether you will be itemizing or taking the standard deduction this year, all individuals are now able to receive certain deductions to their charitable contributions. The deductions available include: 

• Deduct up to $300 of charitable cash contributions. (No itemization required)  
• The normal 60% adjusted gross income (AGI) limitation on “qualifying contributions” is suspended for taxpayers who itemize. Qualifying contributions require:  
  • (1) cash contribution to a qualifying organization (501(c)(3)), and  
  • (2) election by the taxpayer to suspend the limitation.  
• However, a qualifying contribution does not include contributions to a donor advised fund or 509(a)(3) supporting organizations.  
• Partners in partnerships and shareholders in s-corporations make the required election at the individual level, not the entity level.  
• For C-corporations, qualifying contributions go from the 10% taxable income limit to a 25% taxable income limit. 
• Any contribution in excess of the contribution base (which is usually AGI) will be treated as a carryover.  

 Updated 4/2/2020 at 12:00 PM  

Required Minimum Distributions (RMD)s Waived for 2020

RMD requirements do not apply for calendar year 2020. This includes distributions with a required beginning date occurring in calendar year 2020 and such distribution not having been made before January 1, 2020.  

Updated 4/2/2020 at 12:00 PM   

Employer Student Loan Repayment Exclusion 

Normally, an employee’s gross income doesn’t include up to $5,250 per year of employer payments, in cash or kind, made under an educational assistance program for the employee’s education under IRC 127.   This new temporary provision now allows employers to pay up to $5,250 of an employee’s student loan debt on a tax-free basis.   Employer payments can be for the loan’s interest or principal.    

Please note there is no double benefit, these employer payments may limit the employee’s student loan interest deduction.  

Updated 4/2/2020 at 12:00 PM  

Tax-Related Provisions for Businesses

The CARES Act introduced several retroactive business tax changes. A highlight of the modifications include the following: 

•  Qualified improvement property is now 15-year property instead of 39-year property effective 1/1/2018. 
  • The modification corrects an oversight from the TCJA (Tax Cuts and Jobs Act) affecting certain restaurant and retail businesses property.  Now, this property once again qualifies for bonus depreciation.   
• Net operating losses (NOLs) for years starting in 2018-2020, can be carried back 5 years. 
  • The NOL 80% limitation has been suspended until tax years starting in 2021.   
  • In other words, the taxable income limitation on the use of the NOL will be temporarily removed to allow the NOL to fully offset income back to 2013 at the earliest. 
• Excess business losses removed until 2021.   
  • The limit on deducting businesses losses in excess of $250,000 (single) or $500,000 (joint) will be temporarily repealed backdated to 2018, not taking effect until 2021. 
• Business Interest Limitation Adjustments  
  • 163(j) business interest expense limitation is now 50% (instead of 30%) for tax years beginning in 2019 (except partnerships) and 2020.   
  • 163(j) business interest limitation adjustments for 2019 partnerships are made at the partner level partially in 2019 and partially in 2020 subject to special elections. 
• Full recovery of corporate AMT credits for tax years beginning in 2019. 
  • AMT was repealed as part of the TCJA (Tax Cuts and Jobs Act). Corporate AMT credits were to be available as refundable credits over several years ending in 2021. 

Updated 4/2/2020 at 12:00 PM  

Payroll Considerations of COVID-19 Legislation

In the past couple weeks, two pieces of legislation have impacted payroll by introducing potential tax credits and extending employee leave for those impacted by COVID‐19. Please note, every business has a different fact pattern, and some payroll provisions have an impact on eligibility for the Paycheck Protection Program and its related debt forgiveness potential.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)  

The first piece of legislation, the Families First Coronavirus Response Act (FFCRA), was signed by President Trump on March 18, 2020. There are two main provisions noted below, each effective April 1, 2020 through December 31, 2020. Employers with less than 500 employees are subject to its requirements, while employers with less than 50 employees may qualify for an exemption (see DOL Q&A for further guidance). 

EMERGENCY FMLA LEAVE  

• Extends coverage under the Family and Medical Leave Act to employees unable to work because of need to care for child under 18 years whose school or care facility is closed due to COVID‐19.
• Employee must have been employed for 30 days to qualify.
• Employee benefit is 2/3 of normal pay not to exceed $200/day and $10,000 in aggregate.
• Employer may qualify for a payroll tax credit for the qualified leave wages, any qualified health plan expenses (employee pretax portion and employer portion) allocable to the qualified leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified leave wages.
• Employee can receive up to 12 weeks of leave; the first two weeks are unpaid; however, PTO or paid sick leave can be used during this time, but the employer cannot mandate their use.
• Leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from employer 6.2% FICA taxes.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

EMERGENCY PAID SICK LEAVE  

• Provides coverage for employee unable to work because of direct or indirect effects of COVID‐19, including being subject to quarantine, self‐quarantine, or caring for child(ren) under age 18 years.
• There is no minimum employment period to qualify.
• Full‐time employees receive 80 hours maximum, while part‐time employees receive the number of hours normally worked in a two‐week period.
• Employer may qualify for a payroll tax credit for the qualified sick leave wages and the employer’s share of Medicare taxes (1.45%) on the qualified sick leave wages.
• An employer is not required to pay more than $511 per day or $5,110 in aggregate per employee personally affected by COVID‐19 or $200 per day or $2,000 in aggregate per employee with family members affected. The employer may receive a tax credit up to these amounts.
• Paid sick leave payments are subject to employee FICA, income tax withholding, Medicare taxes and employer Medicare taxes; they are exempt from an employer’s 6.2% FICA taxes.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY (CARES) ACT

The second piece of legislation, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed by President Trump on March 27, 2020. There are three important provisions relating to payroll.

TEMPORARY PANDEMIC UNEMPLOYMENT ASSISTANCE PROGRAM  

• Expands unemployment insurance to those typically not covered, including self‐employed, independent contractors, and employees with limited work history.
• Provides up to $600 per week in addition to state unemployment benefits.
• Provides an additional 13 weeks of coverage to 39 weeks total, up from 26 weeks.
• States may waive the first week waiting period for benefits; Nebraska and Iowa have waived this
  requirement.  

EMPLOYEE RETENTION CREDIT  

• Not available for employers that participate in the Paycheck Protection Program (PPP) loan.
• Applies to wages March 13, 2020 through December 31, 2020.
• Qualified wages are reduced by employer payments made for Emergency FMLA Leave and Emergency Paid Sick Leave.
• Qualified employers include those:
  • Who have been fully or partially suspended due to order from a government authority OR
  • Have a greater than 50 percent decrease in gross receipts compared to the same calendar quarter in the prior year.
• For employers with less than 100 average employees as defined in Sec. 4980H, qualified wages include wages paid during a time of shutdown or decline in business.
• For employers with more than 100 average employees as defined in Sec. 4980H, qualified wages generally include wages to employees who are not currently providing services or working.
• The employer credit is 50 percent of qualified wages paid not to exceed $10,000 of wages per employee. Thus, the maximum credit is $5,000 per employee for the effective period.
• Employers may be eligible to file Form 7200 for advance payment of employer tax credits OR may be eligible to retain the federal employment tax that would otherwise be deposited, including federal income tax withheld, and both the employee’s and employer’s share of social security and Medicare taxes.

DELAY OF EMPLOYER PAYROLL TAXES  

• Not available to employers who participate in Paycheck Protection Program AND receive debt forgiveness.
• Applicable taxes are ONLY employer FICA taxes (6.2%) and are deferred to the following dates:
  • 50% until December 31, 2021 AND
  • 50% until December 31, 2022.

Helpful Links & Frequently Asked Questions (FAQ):
Department of Labor – COVID‐19 and the American Workplace
Internal Revenue Service – Related Tax Credits Provided by Small and Midsize Businesses

IRS GUIDELINES FOR CLAIMING PAYROLL TAX CREDITS

The Internal Revenue Service (IRS) has released additional guidance for employers who receive payroll tax credits under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Failure‐to‐deposit penalties WAIVED during pandemic

The IRS is providing employers temporary relief from failure‐to deposit penalties imposed by Section 6656 of the Internal Revenue Code if:
(1) an employer pays qualified leave wages or qualified retention wages in the calendar quarter before the required deposit;
(2) the amount of federal employment taxes the employer does not timely deposit is less than or equal to the employer’s anticipated credits for qualified leave wages; and
(3) the employer did not seek advance payment of the credit by filing Form 7200 for the same wages.

Form 7200

Form 7200, Advance Payment of Employer Credits Due to COVID‐19, has been released and is available for wages beginning April 1, 2020. This can be filed by employers that report wages on quarterly Form(s) 941, 943, or 944 and qualify for any of the following payroll tax credits: Emergency FMLA Leave Credit, Emergency Paid Sick Leave Credit, or Employee Retention Credit.
Although self‐employed individuals may qualify for credits, they may NOT file Form 7200 to receive them.
Employment taxes that are available for the credits include withheld federal income tax, and both the employee and employer share of social security and Medicare taxes with respect to all employees.
When should an employer file Form 7200? See below for two examples.

Example 1

An employer is entitled to a credit of $5,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $5,000 and only remit $3,000. No Form 7200 is needed since the credit has been claimed in full.

Example 2

An employer is entitled to a credit of $10,000 for qualified paid sick leave and its normal payroll tax deposit would be $8,000. The employer can reduce its payroll tax deposit immediately by $8,000 and not remit any payment. Form 7200 can then be filed to claim the additional $2,000 credit, resulting in faster access to the funds versus waiting to file the related employment tax return.

Updated 4/6/2020 at 8:30 AM 

COVID-19 Emergency Injury Disaster Advance and Loans (EIDL)

EIDL EMERGENCY ADVANCE 

An emergency grant can provide an advance of up to $10,000 to small businesses and non-profits harmed by COVID-19 within three to five days of applying for a COVID-19 Economic Injury Disaster Loan (EIDL). The advance does not need to be repaid, and may be used to keep employees on payroll, pay for sick leave, meet increased production costs due to supply chain disruptions, or pay general business obligations. 

A business must have been in business as of January 31, 2020 in order to receive the emergency grant. The amount of emergency grant received (up to $10,000) is at the discretion of the Small Business Administration (SBA). 

Provided below is an overview of an SBA EIDL. The emergency grant request is part of the COVID-19 EIDL application. If you are denied the EIDL, you are not required to repay the emergency grant received. If you apply for an EIDL and the emergency grant, you can still apply for the Paycheck Protection Program (PPP) loan. However, the amount of PPP loan forgiven will be reduced by the emergency grant received.  

To apply for the COVID-19 EIDL, go to https://covid19relief.sba.gov/#/ 

INFORMATION ON EIDLS 

Economic Injury Disaster Loans are working capital loans intended to help small businesses of all sizes meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster. These loans are intended to assist through the disaster recovery period. 

EIDLs may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disasters impact. However, if the COVID-19 EIDL proceeds are used for payroll, PPP loan proceeds cannot also be used for the same payroll. 

LOAN AMOUNT, TERMS, & INTEREST RATE 

• Loan amount: The SBA determines the loan amount, not the applicant. The law limits EIDL up to $2 million. The loan amount is limited to the economic injury determined by the SBA, less business interruption insurance and other recoveries. If a business is a major source of employment, SBA has the authority to waive the $2 million limit. 
• Loan terms: Determined on a case-by-case basis, based upon the borrower’s ability to repay. SBA will determine an appropriate installment payment based on the financial condition of each borrower, which in turn will determine the loan term (max of 30 years). 
• Interest rate: Maximum annual rate of 3.75%.  

Updated 3/31/2020 at 11:00 AM 

The Paycheck Protection Program (PPP)

During the covered period of February 15, 2020 – June 30, 2020, all businesses, including nonprofits, sole proprietorships, self-employed individuals and independent contractors, with less than 500 employees[1] (employees defined as full-time, part-time or other basis) is eligible for a PPP loan in the amount equal to the lesser of: 

• Average total monthly payroll costs[2] incurred during the last year (fiscal year 2019)   X    2.5    

AND 

• Outstanding amount of Economic Injury Disaster Loan (EIDL) made during the period beginning on January 31, 2020. These EIDLs can be refinanced as part of a PPP loan, assuming the proceeds from the disaster loan were not used for the intended purposes of the PPP loan. 

OR 

• $10,000,000 

KEY TAKEAWAYS 

• Applications can be submitted on April 3, 2020 (April 10, 2020 for independent contractors or sole proprietors). 
• SBA shall require no personal guarantee or collateral requirement and shall have no recourse against borrower unless borrower uses funds for purposes not authorized. 
• PPP loan proceeds can ONLY be used for payroll costs (as defined); costs related to the continuation of group health care benefits during periods of paid sick medical or family leave; mortgage interest payments; rent (if agreement in place prior to February 15, 2020); utilities and any interest on any other debt obligations incurred prior to February 15, 2020.  
• Lenders that traditionally make SBA loans can make PPP loans. The only eligibility considerations a lender can consider include whether the borrower: 
• Was in operation on February 15, 2020. 
• Had employees for whom the borrower paid salaries and payroll taxes. 

BORROWER REQUIREMENTS 

Borrower shall make a good faith certification that:  

1. Loan is necessary to support ongoing operations in light of current economic conditions, 
2. Acknowledge that funds will be used to retain workers and make payroll or make mortgage, lease and utility payments, 
3. During February 15, 2020 – December 13, 2020, a duplicative application does not exist, and funds have not been received by the borrower for the same purpose. 

AFFILIATION RULES 

Normal affiliation rules shall apply for a PPP loan. In other words, if two or more entities are determined to be affiliated, the total number of employees between the two entities need to be combined in calculating total number of employees. Threshold for affiliation revolves around control. For example, if company A controls company B, both companies are deemed to be affiliated. In addition, if a third party owns both company A and company B, then all three are deemed to be affiliated. 

Affiliation rules are waived for the following: 

1. Business with less than 500 employees assigned NAICS code beginning with 72 (Accommodation and Food Services) 
2. Business with an assigned franchise identifier code by the SBA (https://www.sba.gov/sites/default/files/2019-04/FrnchsTbl_04092019_1_0.pdf) 
3. Business that receives financial assistance from a company licensed under section 301 of the SBIA of 1958 (SBIC financing) 

NOTE: As it currently stands, the application only requires the applicant to disclose and attach any affiliates and describe the relationship. We cannot say whether this affiliation will preclude an applicant from receiving a loan. 

• No fees shall be collected by the SBA related to the PPP loans. 
• It is not a requirement for the borrower to be unable to obtain credit elsewhere to obtain a PPP loan. 
• If a PPP loan balance is reduced as a part of Section 1106 Loan Forgiveness, the remaining balance shall continue to be guaranteed by the SBA with the maximum maturity of the remaining balance being 2 years. 
• Interest rate on CARES Act loans shall be 1%. All payments are deferred on this loan for six months, however interest will continue to accrue during this period. 
• If a business received an economic injury disaster loan after January 31, 2020 for a purpose other than making payroll payments, they can still apply for this loan. 
• There is no pre-payment penalty for a CARES Act loan. 
• SBA has been authorized to make up to $349 billion in these PPP loans. 

OVERLAP WITH OTHER PROGRAMS 

• Employee Retention Credit is NOT available for employers that participate in PPP loan. 
• Deferment of payroll taxes is NOT available for employers that receive a PPP loan AND have had debt forgiven. 
• Wages used for any Payroll Tax Credit for 2 Week Sick Pay or FMLA Leave for Child Care are EXCLUDED from Payroll Cost Calculation for the PPP loan amount. 
• Employers that receive an EIDL are still eligible for a PPP loan ONLY if the purpose of the EIDL was NOT for payroll.

Updated 4/3/2020 at 8:40 AM 

The Paycheck Protection Program (PPP) + Loan Forgiveness 

Any borrower of a PPP loan is eligible for loan forgiveness on the principal of such loan in an amount equal to the sum of the following costs incurred and payments made during the eight week period beginning on the date of the origination of a PPP loan (Covered Period). Costs include:  

• Total payroll costs[3], 
• Interest payments on mortgage obligations (not to include pre-payment or payment of principal) for real or personal property incurred prior to February 15, 2020, 
• Rent obligations (leasing agreement in force prior to February 15, 2020), and 
• Utility payments (for which service began prior to February 15, 2020). 

Forgiven amounts shall be considered cancelled indebtedness by the SBA, for which lenders will later be reimbursed. Any forgiven PPP loan amounts are excluded from gross taxable income. 

Due to likely high subscription of the loan, at least 75% of the forgiven amount must have been used for payroll. 

LIMITS ON AMOUNT OF LOAN FORGIVENESS 

• Total Amount Forgiven may not Exceed Principal 
• Reduction of Forgiveness based on Reduction in Number of Employees 
• Reduction of Forgiveness relating to Decreases in Salary and Wages (calculated by person)

EXCEPTIONS TO REDUCTIONS 

If the reduction in the number of full-time employees AND/OR the reduction in the salary and wages during the period beginning on February 15, 2020 and ending on April 26, 2020 has been eliminated by June 30, 2020, the Reduction of Forgiveness shall not apply. 

[1] Exceptions include: i) instead of the 500 employee limit, the size standard established by the SBA for which industry the business operates in, or ii) a business operating in the Accommodation and Food Services (NAICS 72) that has less than 500 employees per physical location.

[2] Payroll costs include: salary, wages, commissions, or tips (capped at $100,000 annualized per employee); employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit; state and local taxes assessed on compensation; and for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 annualized per employee.

[3] As defined in Section 1102

Updated 4/1/2020 at 11:00 AM