The CARES Act was signed into law on March 27th, 2020, and is designed to ease the financial burden placed on individuals, businesses, and other organizations created by the coronavirus, otherwise known as COVID-19. The bill separates into two distinct areas – programs and protections for individuals, and programs and protections for businesses and other organizations. Below, we’ll outline the main outcomes of the bill in each area. Keep in mind that this legislation has just passed, and everyone is rushing to interpret the 830-page bill. It’s likely that the outcomes and interpretations by the various government agencies may change in the coming months, but here’s what we know now.

Programs and Protections for Individuals
Direct Payments: Americans who pay taxes will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400. In addition, you can receive $500 per child. For individuals, payments are phased out starting at $75,000 in adjusted gross income (AGI), and individuals whose adjusted gross income is more than $99,000 will not receive a stimulus check. The phase-out for couples begins at $150,000 and couples with an AGI of more than $198,000 will not receive a check. The number of dependent children you have can raise these amounts. These amounts are based on your 2019 taxes, or, if you have not yet filed for 2019, your 2018 taxes. People who receive Social Security are still eligible. They don't need to file taxes however, and their checks will be based on information provided by the Social Security Administration. These payments are not taxable, and you do not have to pay these back. They will not count for the purposes of your 2020 taxes. 

Unemployment: The CARES Act program provides $250 billion for an extended unemployment insurance program. It also expands eligibility and offers workers an additional $600 per week for up to four months, on top of what state programs already pay. It also extends unemployment benefits through Dec. 31, 2020, for eligible workers. This also applies to sole proprietors, the self-employed, independent contractors, and freelance and gig economy workers. You, and your employees, can sign up for Ohio Unemployment benefits online at unemployment.ohio.gov 24 hours a day, 7 days a week. You can also call 1-877-644-6562.

Use of Retirement Funds: The bill waives the 10% early withdrawal penalty for withdrawal of money before age 59 ½ for distributions up to $100,000 for coronavirus-related purposes, retroactive to 1/1/2020. Withdrawals will still be taxed, but the taxes are spread over three years, or the taxpayer has the three-year period to pay themselves back. You are still able to make normal contributions within the IRS limits during that time.

401(k) Loans: The loan limit has been increased from $50,000 to $100,000. See above for payback provisions.

Required Minimum Distributions (RMDs) Suspended: Required minimum distributions from IRAs and 401(k) plans (at age 72) are suspended for 2020.

Charity: There is a new provision that provides an above-the-line deduction of up to $300 for charitable contributions. Additionally, the limits on charitable contributions have been changed, and you may now make gifts of up to 100% of your AGI beginning in tax year 2020. Before the limit was 60%.

Interest Expense Limitation: The interest expense on business loan limitations are increased to 50% from 30% for tax years beginning in 2019 or 2020. Taxpayers can also choose to calculate the interest limitation for 2020 using their 2019 adjusted taxable income as the relevant base, which may be significantly higher. 

Federal Student Loans Suspended: Federal student loan payments and interest accrual is suspended through September 30th, 2020. Loan collections have also been halted for this same period.

Employer Student Loan Payments: Employers can provide up to $5,250 in tax-free student loan repayment benefits for employees. For example, an employer may contribute to loan payments and workers wouldn't have to include that money as income. The employer does receive a deduction and does not need to pay FICA or unemployment taxes. 

Credit Protection During COVID-19: The Act requires that institutions who agree to account forbearance, or agree to modified payments with respect to an obligation or account of a consumer that has been impacted by COVID-19, report such obligation or account as “current” or as the status reported prior to the accommodation during the period of accommodation (unless the consumer becomes current) if the consumer complies with the modified agreement. Such credit protection is available beginning January 31, 2020, and ends 120 days after the date the national emergency declaration related to the coronavirus is terminated. 

Programs and Protections for Businesses
Payroll Taxes: The CARES Act allows employers to postpone the payment of their portion of 2020 payroll taxes until 2021 and 2022. You would make these payments in two installments – 50% on or before 12/31/21 and 50% on or before 12/31/22. You are not eligible for this benefit if you make use of the Paycheck Protection Program (PPP).

Small Business Relief: $350 billion is being dedicated to avoiding layoffs and business closures while workers have to stay home during the epidemic. Companies with 500 employees or fewer that maintain their payroll during the coronavirus crisis can receive up to 8 weeks of cash-flow aid. If employers maintain payroll, the portion of the loans used for covered payroll costs as well as interest on mortgage obligations, rent, and utilities would be forgiven. This is known as the Paycheck Protection Program (PPP). To get more information on SBA loans and programs www.sba.gov/disaster

Excess Loss Limitations: The excess loss limitation (ELL) rules for pass-through entities have been suspended. Previously, an excess business loss would arise when a taxpayer's aggregate trade or business deductions exceeded the sum of the taxpayer's aggregate trade or business gross income and gain, plus a threshold amount (for 2019, $250,000 or $500,000 for a married couple filing jointly).

Net Operating Losses: The Tax Cuts and Jobs Act (TCJA) of 2017 net operating loss rules have been modified. The 80% rule is lifted, and losses can now be carried back up to five years.

Large Corporations: $500 billion will be allotted to provide loans, loan guarantees, and other investments. These will all be overseen by a Treasury Department inspector general. These loans are not permitted to exceed five years and may not be forgiven. 
Emergency Grants: The bill provides $10 billion for grants of up to $10,000 to provide emergency funding for small businesses to cover immediate operating costs. These are known as Economic Injury Disaster Loans (EIDL) To get more information on the EIDL and the EIDL Grant visit https://covid19relief.sba.gov/#/

Relief for Existing Loans: There is $17 billion available to cover up to six months of payments for small businesses already using SBA loans.

Fully Refundable Tax Credit: This is for businesses of all sizes that are closed or distressed with the goal of helping them to keep workers on their payroll. Ultimately, the plan is to get those employees hired back or put on paid furlough to make sure they have jobs to return to. The credit covers up to 50% of payroll on the first $10,000 of compensation, including health benefits, for each employee. For employers with more than 100 full-time employees, the credit is for wages paid to employees when they are not providing services because of the coronavirus. Eligible employers with 100 or fewer full-time employees could use the deduction even if they aren't closed during the coronavirus crisis. You are not eligible for this benefit if you make use of the Paycheck Protection Program (PPP).

Keep in mind that most banks are working with clients to defer loan payments and make other financial accommodations. However, this varies by bank, so please contact yours to see what specific programs you may benefit from.

Finally, we have already seen evidence of stimulus check scams and would warn all of our clients and friends to be especially vigilant when receiving phone calls or emails about your stimulus check. Remember, the IRS will not ask you for personal information over the phone or via email.

If you have any questions regarding how you may be able to benefit from this stimulus package or how this impacts your particular situation, please contact your advisor. We are here to help you during these difficult times and hope that you are staying safe and healthy.