Last night, the U.S. Senate passed the $2 trillion phase III of COVID-19 relief package, titled “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act.” The House of Representatives is expected to approve the Act as early as tomorrow.
In addition to allocating substantial economic relief for health operations and state and local government, the CARES Act creates individual rebates of up to $1,200 for individual taxpayers who earn $75,000 or less per year, with an additional $500 per child, and which gradually phases out at 5 percent per dollar of qualified income. It also establishes a new Pandemic Unemployment Assistance program to expand unemployment insurance for freelance, gig workers, and the self-employed, adding $600 per week in unemployment benefits; and provides $75 million in additional individual funding to the NEA and NEH.
This is a very positive development for authors and other creators, who came together in this time of crisis to voice their concerns.
We are still reviewing the details, and will have more information in the coming days. In the meantime, feel free to send your questions to firstname.lastname@example.org and we will try to answer them or refer you to an expert.
Below we break down some of the key provisions of the Act affecting individuals, small business owners, and charitable organizations.
Key individual provisions:
• Section 2201. (Individual rebates) All U.S. residents with adjusted gross income up to $75,000 for individuals and $150,000 for joint filers, who are not a dependent of another taxpayer and have a valid social security number, are eligible for a $1,200 ($2,400 for joint filers) rebate. In addition, they are eligible for an additional $500 per child. Generally, the taxpayer does not need to take any action to receive the rebate. The rebate amount is phased out gradually for single filers with incomes up to $99,000, and for joint filers up to $198,000, with further adjustments for filers with children.
• Section 2202. (Penalty-free retirement account withdrawals) The 10% penalty for early retirement account distributions is waived for up to $100,000 in withdrawals for coronavirus-related purposes made in 2020. Income attributable to those distributions would be taxed over three years, and the funds may be re-contributed to a retirement plan within three years without regard to that year’s contributions cap.
Key business provisions:
• Section 2301. (Employee retention tax credit) A refundable payroll tax credit for 50% of wages is provided to employers whose (1) operations were fully or partially suspended due to a COVID-19-related shut-down order, or (2) quarterly gross receipts declined by more than 50% year-over-year. For employers with over 100 full-time employees, qualified wages are wages paid to employees no longer providing services due to COVID-19-related circumstances. For eligible employers with 100 or fewer FTEs, all employee wages qualify for the credit. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020.
• Section 2302. (Payroll tax payment deferral) There is not a payroll tax holiday, which the Administration had sought, but to which Democrats had objected. Instead, there is a delay in when payment of employer payroll taxes for the period from the date of enactment through the end is due—half at the end of 2021, and the other half at the end of 2022.
• Sections 2303 and 2304. (Expanded use of net operating losses) Relief is temporarily granted from the changes made to net operating losses (NOLs) in the 2017 tax bill, which had generally eliminated NOL carrybacks and capped NOL carryforwards. The CARES Act provides that a loss from 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL carryforward to fully offset income. Relief is provided for corporations, pass-throughs, and sole proprietorships.
• Section 2305. (Accelerated corporate AMT credits) The corporate alternative minimum tax (AMT) was repealed as part of the 2017 tax bill, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The CARES Act accelerates the ability of companies to recover those AMT credits.
• Section 2306. (Increase in maximum business interest deduction) The CARES Act temporarily increases the amount of interest expense businesses are allowed to deduct from 30% of taxable income to 50% (with adjustments) for 2019 and 2020.
• Section 2307. (Accelerated write-offs for real property improvements) The CARES Act allows businesses to write off the cost of certain improvements to real property immediately, rather than over the 39-year tax life of the building. This provision is meant to particularly help the hospitality and retail industries.
Key charitable provisions:
• Section 2204. ($300 above-the-line charitable deduction) The 2017 tax bill largely wiped out the charitable deduction for the great majority of taxpayers who claim a standard deduction rather than itemize. The provision permits an “above-the-line” deduction—that is, a deduction for non-itemizers—for cash charitable contributions of up to $300.
• Section 2205. (Increase in maximum charitable deduction) For individuals, the limitation of charitable deductions to 50% of adjusted gross income limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.