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For more information or for any questions, please contact Mike Vogel, CPA at mvogel@hsccpa.com.

The CARES Act provides tax relief for individual and businesses alike. Below are some major points from the Act as well a link to the full CARES Act Special Report from Wolters Kluwer.

Recovery Rebates

• The Act would provide rebates of as much as $1,200 per individual or $2,400 for couples who file joint tax returns. An additional $500 would be provided for each child.
• Taxpayers would be eligible if they had qualifying income on their 2018 tax returns – including earned income and certain retirement benefits – of at least $2,500, or net income tax liability greater than zero and gross income greater than the basic standard deduction.
• The credit would be reduced by $5 for each $100 that a taxpayer’s income exceeds $75,000,or $150,000 for joint filers. It would completely phase out for individual incomes greater than $99,000 or joint incomes greater than $198,000.

Paycheck Protection Program (PPP) (SBA 7(a) forgivable loans)

• Helps small businesses, 501(c)(3)’s, 501(c)(19)’s, and 31(b)(2)(c).
• Limited to under 500 employees.
• Includes independent contractors, sole proprietors and the self-employed.
• Entities must have been operational by 2/15/20; had payroll, paid taxes.
• Covered loan period is 2/25/20 through 6/30/20.
• Maximum loan amount via 7(a) set to $10 million through 12/31/20.
• Eligible expenses include payroll, insurance, rent, mortgage and utilities.
• Amount spent by borrower in the first 8 weeks from loan origination may be forgiven;amount reduced proportionate to reductions in workforce as compared to previous year; if rehires made during 8 week period, no penalty in reflection of possible layoffs early in the 8 week period.
• Borrower cannot apply/carry both PPP and Economic Injury Disaster Loan (EIDL) for
  COVID-19, but can carry previous, non-COVID-19 EIDL and participate in PPP.
• Borrow must good-faith certify that funds are needed for COVID-19 related purposes, the funds will be used to retain workers, and that their request is not duplicative with other SBA funds for the same purpose.
• Waives borrower and lender fees.
• Waives credit elsewhere requirements.
• Waives collateral and personal guarantees.
• Sets maximum interest rate of 4%.
• No prepayment fees.
• Delegates authority to all existing 7(a) lenders to expedite approvals/distributions
• Anything not forgiven or repaid by 12/31/20 will convert to a max 10 year loan at a max 4% interest rate.

 Deferral of Payroll Taxes

• The Act would defer employer payroll, railroad retirement, and self-employed Social Security tax payments through the end of 2020. Deferred funds would be paid over two years in 2021 and 2022. Deferral wouldn’t apply to employers with 7(a) small business loan debt forgiven under the bill.

Retirement Plans

• Individuals could withdraw as much as $100,000 from their retirement accounts through the end of 2020. Funds would be treated as a tax-exempt rollover contribution if repaid in the next three years. If funds weren’t repaid, they would be taxed as income over three years.
• Individuals would be eligible to make withdrawals if they or their spouse are diagnosed with Covid-19, or if the pandemic hurts their finances, such as through layoffs or reduced hours.
• Eligible individuals could receive loans for the lesser of $100,000 or the present value of their vested benefits in their employer retirement accounts in the 180 days after the bill’s enactment. The limit is currently $50,000 or half the account’s value.
• Plans would have to be modified to allow some of these provisions.
• Individuals affected by the coronavirus with retirement plan loans due by Dec. 31,2020, would have an extra year to repay them.

Charitable Contributions

• The Act would create a permanent $300 above-the-line individual charitable contribution allowance, beginning in 2020, for individuals who don’t itemize their returns.
• The Act would also would suspend for 2020 the limit on the individual charitable deduction, which is available to filers who itemize. The deduction is limited to 60% of individual taxpayers’ adjusted gross incomes through 2025.
• The corporate charitable deduction limit would be increased in 2020 to 25% of taxable income, from 10%. A deduction for food inventory contributions would be increased to 25%, from 15%.

Business Provisions

• The Act would allow business losses from tax years after Dec. 31, 2017, and before Jan. 1, 2020, to be carried back five years. Net operating loss carrybacks were previously eliminated for most businesses by the 2017 tax overhaul.
• The Act would allow the full amount of net operating loss carryovers and carrybacks to be used for tax years beginning before Jan. 1, 2021. The deduction was limited to 80% of taxable income under the 2017 tax overhaul. A separate deduction limit would be established for tax years beginning after Dec. 31, 2020.
• The Act would modify the effective date of changes to the net operating loss deduction included in the 2017 tax overhaul.
• The measure would also modify net operating loss deduction limits for pass-through businesses and sole proprietorship as well as small business loss limitations.
• The measure would modify the interest limitation provision of 163(j) modifying the income threshold from 30% to 50%. For 2019 & 2020.
• Certain technical corrections are made to the TCJA including a correction of the rules related to qualified improvement property.
• The bill provides for an exclusion of up to $5,250 from income for payments of an employee’s education loans. In order for the exclusion to apply, the loan must have been incurred by the employee for the education of the employee. The payment can be made to the employee or directly to the lender. The exclusion only applies for payments made by an employer after the date of enactment and before January 1, 2021.

SBA 7(a) Relief Loans under the Cares Act versus 7(b) SBA economic injury disaster loan (EIDL) loan program. It is important to note that this portion of the CARES Act is not the same as the 7(b) SBA economic injury disaster loan (EIDL) loan program that is already available on the SBA website, nor may it be used for the same purpose. Interested borrowers should evaluate both programs and choose accordingly.

For more information, please click click here or contact John Rittichier at jrittichier@hsccpa.com.