The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was approved by both houses of Congress and signed by the President on Friday, March 27.
The CARES Act is the most expensive piece of legislation ever passed in the history of our country. It provides approximately $2 trillion in financial assistance to aid the healthcare system, individuals, non-profits, businesses, and state, local, tribal, and territorial governments.
As details of this legislation continue to emerge, Donovan CPAs is committed to helping our clients and community navigate available resources and information to get through this time. We also want to share guidance and actionable advice – including information on the immediate benefits provided by this legislation.
As you may know, the CARES Act focused on providing relief to businesses and individuals economically impacted by the coronavirus outbreak.
As a first step, we recommend you contact your local banking partner as soon as possible regarding the Paycheck Protection Loan Program (see below) to get the process moving!
Below are some important highlights of this legislation. Please contact your primary Donovan team member or you can reach us at 317.745.6411 with any questions!
How Does the CARES ACT Impact Small Businesses & Non-Profits?
The legislation includes several provisions to help small businesses to continue to support their employees and recover from this financial hit. More details will be coming out in the coming days. The US Treasury Secretary, Steven Mnuchin, communicated that his team was working with the SBA and plans to have programs online by Friday, April 3rd. You can see updates on the SBA’s COVID-19 resources website. We suggest checking the site regularly for updates. Here are some initial details.
Paycheck Protection Program (“PPP”)
The CARES ACT proved $350 billion to be dedicated to preventing layoffs and business closures while workers have to stay home during the outbreak. If employers maintain payroll, this specifically allows businesses, non-profits, tribal businesses, sole proprietors, and veteran’s organizations impacted by COVID-19 to borrow up to $10 million in forgivable loans to cover payroll and/or interest, lease and utility expenses. This program is administered by SBA lenders and runs through June 30th, 2020. IMPORTANT: Contact your local banking partner as soon as possible to get the process moving!
Other Details on the Employee Retention Loans, Include:
- The loans provide eight weeks of cash-flow assistance to small businesses with 500 employees or fewer at the time of the loan.
- The loan amount will be the monthly average of payroll costs from the 2019 calendar year, with limits multiplied by 2.5 times.
The loans apply as follows:
- For non-seasonal employers, 2.5x the average monthly payroll over the last year.
- For seasonal firms, 2.5x the average monthly payroll for a 12-week period starting either February 15th, 2019 or March 1st, 2019 (at the election of the borrower).
- For businesses without a full year of payroll history, 2.5x the average monthly payroll from January 1st, 2020 to February 29th, 2020.
- Payroll includes salaries (capped at $100k per employee), tips, insurance, and retirement benefits.
- The maximum interest is 4%.
- Borrowers will not be charged with any participation fees or prepayment fees. In addition, no collateral or personal guarantees will be required.
- The loan may be forgiven at a ratio of FTE employees maintained during the measurement period compared to FTE employees before the measurement period. The calculation will be done on June 30, 2020.
- Loan proceeds can be used for payroll related costs, rent, utilities, and interest on existing debt. However, not more than 25% should be used for non-payroll related costs.
- Loans not forgiven are paid back over 2 years, beginning June 2021.
- The loans are on a first-come, first served basis.
Payroll Tax Deferral
This program is designed to help employers free up cash flow and retain employees during this crisis. It allows employers to delay the payment of their portion of 2020 payroll taxes until 2021 and 2022.
Other Details on the Employer Payroll Tax Delay, Include:
- The employer portion of payroll taxes (From 941) from March 27, 2020 to December 31, 2020, is delayed. The amounts of taxes withheld from employee’s pay are still on the prescribed schedule.
- The employer portion is to be repaid 50% by December 31, 2021, and 50% by December 31, 2022.
- Detail procedures and forms updates are pending from the US Treasury EFTPS, Electronic Federal Tax Payment System.
- This deferral applies to 100 percent of employer matching payroll taxes and 50 percent of self-employed individual’s self-employment taxes.
Employee Retention Plan
The ACT requires employees diagnosed with COVID-19 or quarantined because of symptoms to be provided sick leave at full employee pay up to 80 hours, prorated for part-time employees.
Other Details on the Employee Retention Plan, Include:
- Employees affected by COVID-19 related conditions (caring for an affected family member or dependents at home from school or daycare) will receive up to 3 months of 2/3 normal wages.
- The employer will receive a credit on their payroll taxes effective April 2, 2020 to December 31, 2020.
- Daily compensation limits do apply.
- Credits will be reported on the quarterly Form 941 (to be revised).
Other Small Business Highlights
Net Operating Losses: The Tax Cuts and Jobs Act (TCJA) net operating loss rules are modified. The 80% rule is lifted, and losses can now be carried back five years.
Excess Loss Limitations: The excess loss limitation (ELL) rules for pass-through entities are suspended
How Does This Impact Mid-Sized Organizations?
Mid-sized organizations (defined as having between 500 and 10,000 employees) can also find assistance through the newly created Industry Stabilization Fund. Unlike the above SBA loan program, it does not provide loan forgiveness but does mandate interest rates stay below 2% and no interest would accrue, or payments required for the first six months. It does require organizations taking out these loans to retain or rehire at least 90% of their employees at full compensation.
How Does This Impact Individuals and Families?
Direct Payments/Recovery Rebates
Americans who pay taxes will receive a one-time direct deposit or check based on income and the number of children under the age of 16. There will also be a resource for individuals to submit their information for direct deposit. Those who have a direct deposit already set-up will receive these payments faster. The US Treasury Department indicates that individuals should receive these funds within 3 weeks. Individual relief will be based on Adjusted Growth Income (AGI) from either 2018- or 2019-income tax returns filed, using the most recent year filed. Recovery rebates are outlined below:
Provides rebates of:
- $1,200 for individuals
- $2,400 for joint filers
- $500 for each child under age 16
Rebates are based on an income threshold, phasing out the rebate amounts as the following gross income amounts:
- $75,000 for individuals
- $112,500 for heads of households
- $150,000 for joint filers
Rebates are completely phased out for people whose AGI exceeds the following thresholds:
- $99,000 for individuals
- $146,500 for the head of household
- $198,000 for joint filers.
The legislation sets aside $250 billion for an extended unemployment insurance program and expands eligibility and offers workers an additional $600 per week for four months, in addition to the state unemployment programs. This also applies to self-employed, independent contractors.
Retirement Plan Waivers
The program waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to January 1st. Withdrawals are still taxed, but taxes are spread over three years, or the taxpayer has the three-year period to roll it back over. The legislation also allows for 401K loans to increase from $50,000 to $100,000.
Charitable Contribution Tax Deduction Expansions
The legislation provides a deduction for charitable contributions, as well as, changes the limits on charitable contributions. This includes allowing an above-the-line deduction of up to $300 for charitable contributions by individuals who do not itemize their deductions.
Other Charitable Provisions Include:
- Individuals are allowed to claim itemized deductions for cash charitable contributions up to the amount of AGI.
- Corporations are permitted to claim up to 25 percent of AGI in charitable deductions, instead of the previous 10 percent limit.
- The legislation also increases the deduction for food inventory donations from 15 percent to 25 percent.