CARES Act Passes Senate

Updated on March 26, 2020 at 2:30 p.m.

Late on March 25, 2020 the Senate passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act by a 96-0 vote. The bill moves to the House where a vote is planned for Friday March 27th. There are several key provisions we wanted to highlight. The Senate Finance Committee summary can be found here.

Rebates & Individual Provisions

• Recovery Rebates for all US residents with adjusted gross income up to $75,000 or $150,000 married filing joint (‘MFJ”). Rebates are $1200 ($2400 MFJ) and an additional $500 per child. The rebates are phased out by $5 for every $100 over the threshold. Rebates are fully phased out at $99,000 single and $198,000 MFJ. The income limits are based on taxpayer’s 2019 tax returns. If a 2019 return has not been filed, the rebates will be based on 2018 tax returns and a true up will be made on the 2020 tax returns.
• Increased access to retirement accounts.
  • Allows taxpayers to withdraw up to $100,000 from qualified retirement accounts for coronavirus related purposes and avoid the 10% early withdrawal penalty. The taxpayer is still subject to income tax on the withdrawal but may spread it out over three years.
  • Waives the required minimum distribution requirements for certain retirement plans
• Charitable donations
  • Provides for a $300 above the line charitable donation whether taxpayer itemizes or not.
  • Suspends the 50% AGI limitation on charitable donations
• Pandemic Unemployment Assistance allows unemployment type benefits to self-employed individuals.
• Unemployment expansion allows for an additional $600 per week for unemployment insurance or Pandemic Unemployment assistance for up to four months.

Business Provisions

• Employee Retention Credit provides a refundable payroll tax credit of 50% of the first $10,000 of wages paid to an eligible employee. The credit is available to employers whose businesses were in a COVID 19 shutdown or whose gross receipts declined by more than 50% from the prior year. The credit is for wages paid between March 13, 2020 and December 31, 2020.
  • Key take away for small employers: For taxpayers with fewer than 100 employees, all employee wages qualify for the credit, regardless of whether the business is shut down.
  • Taxpayers who have taken out an SBA disaster loan under the new provisions of the CARES act are not eligible for this credit. If you are in the process of applying for an SBA loan, please consult with us and your lender to help determine best course of action.
• Delay of employer related payroll taxes by allowing a deferral of the employer share of the 6.2% social security tax of wages paid between the date of enactment and December 31, 2020. The deferred tax will be paid over the following two years.
• Net Operating Losses arising in 2018-2020 may be carried back five years. The 80% taxable income limitation is also temporarily removed.
• Business loss limitations are not subject to the $250,000/$500,000 annual loss limitations.
• Business Interest limitations are temporarily relaxed by substituting a 50% limit for the current 30% limit.
• Qualified improvement property provision of the TCJA is modified to allow for an immediate bonus depreciation deduction for the qualifying property. The deduction is also available on an amended return for property placed in service in 2018 or 2019.