The CARES Act: What You Need to Know

The bipartisan $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is the single largest, and the most wide-ranging, potentially game-changing stimulus package ever created by the federal government. Although the 800-plus page bill contains an exceptionally wide range of provisions, what follows are some of the highlights.

As the government has set the wheels in motion to help individuals and businesses combat the challenges created by the COVID-19 crisis, we at Klatzkin are here to assist you in maintaining your financial vitality and keep your business moving forward.

Benefits for Individuals

• Stimulus Checks – The engine of the stimulus package is individual checks directly to taxpayers from the federal government for $1,200 per person for adults and $500 per child under 17. These funds are not considered taxable income and will be directly deposited based on the information in taxpayers’ most recently filed tax return.  Although no firm date for this has been set, indications are that funds will begin being disbursed during the month of April. Income phase-outs for stimulus payments start at $75,000 of adjusted gross income and fully phases out at $99,000 for single individuals and begins at $150,000 and ends at $198,000 for married couples.  Unfortunately, dependents are not eligible for stimulus payments themselves.
• Unemployment Insurance – Unemployment insurance compensation programs will be enhanced and receive aid from the federal government.  Under the plan, current unemployment insurance benefits will be augmented by an additional $600 per week of pandemic unemployment compensation. Terms of the package also call for extending the length of unemployment benefits by 13 weeks, meaning that workers in states offering 26 weeks of benefits are now eligible for 39 weeks. The extra payments will continue for up to four months, ending on July 31. Recipients can also be self-employed and part-time workers, regardless of their state’s standard policy concerning these individual classifications.
• Retirees – The stimulus also benefits retirees. For 2020, retirement account required minimum distributions (RMDs) have been waived, meaning that if you don’t need it, you can avoid taking funds out of your retirement account.  Not only will this save on income taxes, but it also will offer an opportunity for retired individuals to maybe not have to liquidate investment holdings at depressed values. These individuals are also able to return funds taken out within 60 days of the distribution with no tax consequences and no penalties. If individuals wish to borrow from their retirement accounts, the maximum dollar amount has been doubled from $50,000 to $100,000. And finally, the standard 10% penalty for early withdrawals from retirement plans and IRAs up to $100,000 has been waived. Retirees can take out the money as a tax-free loan if it’s repaid within three years.
• Charitable Contributions – Finally, the rules for charitable contributions have also been updated. A new tax deduction of up to $300 of charitable donations can be deducted by those who do not itemize their deductions. Cash gifts to public charities are now fully deductible against 2020 adjusted gross income.

Benefits for Businesses

• Paycheck Protection Program – For businesses, the centerpiece of the stimulus package is the Paycheck Protection Program. It is intended to assist small and medium-sized enterprises primarily.  The underlying support is to come from the Small Business Association (SBA) loans with up to ten-year terms and maximum interest rates of 4%. Portions of the loans can become grants to cover eight weeks of business expenses. Unlike conventional SBA loans, collateral will not be required, and additional funding sources will be permissible. Uses of the funds can be for payroll, employee health insurance, utilities, mortgage and rent payments, and certain types of interest expense.
• Net Operating Losses – Businesses now will have the expanded use of net operating losses (NOLs) from 2018, 2019, and 2020 to utilize as carrybacks and carryforwards to reduce taxes.  Corporations can now carry back these losses five years, allowing them to obtain refunds for taxes paid. The bill also permits a corporation to offset taxable income in 2019 or 2020 with NOL carryforwards from 2018 or 2019. Partnerships and sole proprietorships will be able to benefit from business loss limitation rules that have been eased.   Such losses for 2018 and 2019 that were disallowed may now be utilized in certain circumstances.
• Qualified Improvements – The “retail glitch” in the 2017 Tax Cuts and Jobs Act (TCJA) that changed many improvement lives from 15 years back to 39 years has been fixed.  Rather than the 39-year write off period, many improvements will now be permitted to be written off in full immediately or over a 15-year useful life.  The correction could prove to be very important for many types of establishments but could be especially crucial for supermarkets, which are under intense pressure during the pandemic.
• Loans for Distressed Companies – The Federal Reserve has set aside $425 billion for loans specifically for distressed companies. An additional $75 billion has been targeted to specific industries, such as airlines and hotels. The program does have some significant restrictions. Recipient companies cannot buy back their shares from investors. Also, they can’t shrink their workforce by over 10% though they can cut employee wages and reduce hours and overtime. Still, this program is one of the largest and well-funded ever with an enormous pool of capital for qualifying companies.
• Payroll Tax Credit – Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis.  The credit is available to businesses disrupted due to virus-related shutdowns and companies that experience a decrease in gross receipts of 50 percent or more when compared to the same quarter last year.

For further information on how specific provisions of the CARES Act may apply to you or your business, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

The above represents our best understanding and interpretation of the CARES Act as of the date of this alert – April 2, 2020. Things are moving at a rapid pace, and as such, information is subject to change.  This alert is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.