Summary of Selected Provisions
The CARES Act was signed into law on March 27, 2020. It represents a bipartisan effort to address the personal and economic affects of the COVID‐19 pandemic. Legislative response to the pandemic has been rolling out over the last few weeks. Prior to the CARES Act, the Coronavirus Preparedness and Response Supplement Appropriations Act (H.R. 6074) was signed by the president on March 6; and the Families First Coronavirus Response Act (H.R. 6201) was signed on March 18. Further legislation and government action is anticipated in response to the pandemic’s effects.
Keeping Employees Paid
1. Paycheck Protection Program (Section 1102)
● The federal government will guarantee 100% of loans up to $10 million made by Small Business Administration pursuant to the Paycheck Protection Program under section 7(a) of the Small Business Act.
● Eligible borrowers include small businesses – including sole‐proprietors, independent contractors, and other self‐employed individuals – and 501(c)(3) nonprofits.
● Covered loan period is from February 15, 2020 through June 30, 2020. Borrowed funds can be used to pay – (a) employee salaries, paid sick or medical leave, health insurance premiums; and (b) mortgage, rent, and utility payments.
2. Loan Forgiveness (Section 1106)
● The loans made under Paycheck Protection Program are potentially 100% forgivable – effectively becoming a non‐taxable grant to the borrowing employer.
● The portion of the loan that is forgivable is the amount the employer expends for the 8 weeks (2 months) after taking the loan on payroll costs (up to $100,000 compensation per employee), interest on mortgage, rent, and utilities.
● The amount of loan forgiveness will be reduced proportionally by any reduction in employees.
● The loan balance remaining at end of 1 year becomes a loan with maximum interest rate of 4% and maximum term of 10 years.
Unemployment Insurance
1. Pandemic Unemployment Assistance Program (Section 2102)
● To help those who are not normally eligible for unemployment benefits (self‐employed, independent contractors, those with limited work history, and others) it creates a temporary Pandemic Unemployment Assistance program until the end of 2020 to provide payment to those who are unable to work as a direct result of the coronavirus public health emergency.
2. Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations (Section 2103)
● Provides funds to states so that they can reimburse nonprofits, government agencies, and Indian tribes for 1/2 of the costs they incur through the end of 2020 to pay unemployment benefits.
3. Emergency Increase in Unemployment Compensation (Section 2104)
● Provides an additional $600 per week payment, for up to four months, to each person receiving unemployment insurance or Pandemic Unemployment Assistance.
4. Pandemic Emergency Unemployment Compensation (Section 2107)
● Provides an additional 13 weeks of unemployment benefits, through the end of 2020, to help those who remain unemployed after state unemployment benefits are no longer available.
5. Grants for Short‐Time Compensation Programs (Section 2110)
● Provides $100 million in grants to states that enact “short‐time compensation” programs to help implement and administer these programs.
Rebates and Other Individual Provisions
1. 2020 Recovery Rebates for Individuals (Section 2201)
● All US residents who are not a dependent with adjusted gross income (AGI) up to $75,000 (single), $112,500 (head of household), and $150,000 (married filing jointly or MFJ) are eligible for a $1,200 ($2,400 MFJ) advanced refundable tax credit, with an additional $500 per dependent child. AGI will be based on the 2019 income tax return, or if not filed yet, the 2018 return. For most taxpayers, no action needs to be taken to get the rebate.
● Rebate is reduced by $5 for each $100 that taxpayer’s income exceeds the phaseout. Rebate completely phases out at $99,000 (single, no children), $146,500 (head of household with one child), and $198,000 (MFJ with no children).
2. Special Rules for Use of Retirement Funds (Section 2202)
● For people under the age of 59 ½, the ten percent early withdrawal penalty is waived for up to $100,000 in IRA or retirement fund distributions if the individual is affected by coronavirus during 2020. The amount distributed can be recontributed to an eligible retirement plan within three years of distribution without regard to that year’s contribution cap. To the extent the distribution is not recontributed, the income attributable to such distribution can be taxed ratably over three years.
● For qualified plans that already currently allow loans, the loan caps are increased to the lesser of $100,000 or 100% of the account balance for individuals affected by coronavirus. In addition, the term of the loan can be one year longer than the normal maximum term permitted. Qualified plan loan repayment can be delayed one year from the original due date.
● An individual is affected by coronavirus if: (a) The individual is diagnosed with COVID‐19; (b) The individual’s spouse or dependent is diagnosed with COVID‐19; or (c) The individual experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID‐19, closing or reducing hours of a business owned or operated by the individual due to COVID‐19, or other factors determined by the Treasury Secretary.
3. Temporary Waiver of RMDs for Certain Plans and Accounts (Section 2203)
● Required Minimum Distributions (RMDs) that are required for qualified define contribution, Section 457(b), Section 403(b) plan participants or their beneficiaries and Individual Retirement Arrangement (IRAs) owners or their beneficiaries are waived in 2020. This waiver includes (i) first‐year RMDs attributed 2019 but can be taken by April 1, 2020; and (ii) all RMDs attributed to 2020. This waiver does not apply to qualified defined benefit plans or non‐tax qualified annuities.
● If a beneficiary is required to withdraw all amounts from an inherited qualified plan or IRA within 5 years, 2020 will not count in determining the 5‐year period.
4. Allowance of Partial Above the Line Deduction for Charitable Contributions (Section 2204)
● Permits a $300 above the line deduction for a charitable gift of cash in 2020 to a public charity, regardless of whether the taxpayer itemizes.
5. Modification of Limitations on Charitable Contributions during 2020 (Section 2205)
● Suspends the charitable deduction cap of 60% of AGI for individuals for cash contributions to public charities made in 2020.
● Increases the corporate charitable deduction cap from 10% of taxable income to 25% of taxable income in 2020 for cash contributions made to a public charity.
● Increases the deduction limitation for contributions of food inventory from 15% to 25%.
6. Exclusion for Certain Employer Payments of Student Loans (Section 2206)
● Up to $5,250 of employer payments for educational assistance can be excluded from an employee’s taxable income each year under an Education Assistance Plan. For the remainder of 2020, an employer’s repayment of an employee’s student loans will be considered excludable education assistance.
7. Temporary Relief for Federal Student Loan Borrowers (Section 3513)
● Federal student loan payment due dates are suspended through September 30, 2020, with no interest accrual.
8. Credit Protection during COVID‐19 (Section 4021)
● If a creditor agrees to certain payment accommodations between Jan 21, 2020 and 120 days after the later of (i) the enactment of the CARES Act, or (ii) the date on which the COVID‐19 national emergency declaration terminates, then the creditor must report the credit obligation or account as current, as long as the borrower complies with the terms of the accommodation.
9. Foreclosure Moratorium and Consumer Right to Request Forbearance (Section 4022)
● A borrower who has a federally‐backed mortgage loan may request forbearance, regardless of delinquency status and without penalties, fees, or interest.
● The forbearance must be granted for up to 180 days, with possible extensions.
● Loan servicers are required to notify borrowers of the right to request forbearance.
Business Provisions
1. Employer Retention Credit for Employers Subject to Closure due to COVID‐19 (Section 2301)
● Refundable credit against employment taxes equal to 50% of “qualified wages” of employees, up to $10K per employee.
● To qualify, a business either (1) must be fully or partially suspended, or (2) there is a reduction of at least 50% in gross receipts compared to the prior year. This credit may not be available to the extent that the employer has one of the Paycheck Protection Program loans that is forgiven.
2. Delay of Payment of Employer Payroll Taxes (Section 2302)
● Defers the deposit of employer payroll taxes and 50% of self‐employment taxes owed with respect to the remainder of the 2020 tax year over a two‐year period.
● Half of the amount will be due by 12/31/2021 and the rest by 12/31/2022.
3. Modifications of Net Operating Losses (Section 2303)
● Temporarily eliminates the 80% of taxable income limitation on the use of Net Operating Losses (NOLs) for certain years.
● Permits businesses and individuals to carry back NOLs arising in 2018, 2019, and 2020 for five years.
4. $500 Billion to the Department of Treasury Exchange Stabilization Fund (Section 4003)
● The funds are allocated as follows: (a) $25 billion in loans and loan guarantees for air carriers; (b) $4 billion in loans and loan guarantees for cargo air carriers; (c) $17 billion in loans and loan guarantees for business critical to maintaining national security; and (d) $454 billion for loans, loan guarantees, and investments in support of facilities established by the Federal Reserve to support lending to eligible businesses, states and municipalities.
● Application procedures and minimum requirements must be published by April 6, 2020.
5. Limitation on Certain Employee Compensation (Section 4004)
● If a business participates in the Section 4003 relief program (immediately above), employee compensation (including salary, stock and bonuses) must be capped until one year after the loan is repaid.
● For employees receiving more than $425K per year, they can’t receive more compensation than they received in 2019 and severance pay or other benefits upon termination can’t exceed twice the 2019 compensation amount.
● Officers or employees receiving more than $3 million per year are capped at total compensation of $3 million plus 50% of the excess over $3 million.
