Summary of Tax Provisions in CARES Act

Individuals

  • $1,200 direct payment to US citizens and Green Card holders, including those living outside the United States, with adjusted gross income of $75,000 or less (in the case of a married couple filing a joint return, the credit amount is $2,400 and AGI threshold is $150,000). Parents with children would also receive $500 for each child under the age of 17. The payments begin to phase out at income levels above $75,000 ($150,000 in the case of a married couple filing a joint return).  For people without children, the payment completely phases out at $99,000 of income ($198,000 in the case of a married couple filing a joint return).  Eligibility and the amount of the payment will be determined based on the individual’s 2019 federal income tax return.  If an individual has not yet filed a 2019 federal income tax return, eligibility and the amount of the payment will be based on the individual’s 2018 federal income tax return.  Individuals who receive payments that are less than they would have received based on their 2020 federal income tax returns (because, for example, their income in 2019 or 2018, as applicable, was higher than in 2020), will be entitled to a credit on their 2020 tax return in the amount of the underpayment.  However, individuals who receive payments that are more than they would have received based on their 2020 tax return do not have return the amount overpaid.  The payments themselves are not taxable.

 

  • Waiver of 10% penalty for early withdrawals of up to $100,000 from a retirement account for taxpayers adversely effected by the coronavirus (e.g., they, their spouse or a dependent is diagnosed with the virus, or they are experiencing financial difficulties as a result of being quarantined, placed on unpaid leave, or having their work or business hours reduced). The withdrawn amount is includable in taxable income ratably over three years unless it is recontributed to a retirement plan at any time within the three-year period.  The coordination between the three-year income inclusion, which must be done ratably, and the three-year recontribution period, which can be done at any point in time, is not clear.

 

  • Increase to the amount that taxpayers adversely effected by the coronavirus can borrow from a retirement plan to the lesser of $100,000 and 100% of the vested amount in the plan (from the lesser of $50,000 and 50% of the vested amount in the plan). To qualify, the loan must be taken within 180 days of the enactment (March 27, 2020) of the bill.

 

  • Delays the due date on any retirement loan repayments that are due between the date of enactment of the bill and December 31, 2020, for one year.

 

  • Waives the required minimum distribution from certain retirement accounts for 2020.

 

  • Provides individual taxpayers who do not itemize deductions, an “above the line” deduction of up to $300 for charitable contributions (other than contributions made to supporting organizations or donor advised funds) made in cash. In addition, individuals who do itemize deductions, can elect to disregard the percentage of adjusted income limitation on deductibility for charitable contributions (other than contributions made to supporting organizations or donor advised funds) made in cash.

 

  • Allows an employee to exclude from gross income up to $5,250 of payments made by his or her employer during calendar year 2020 in respect of the employee’s student loans.

 

Businesses

    • Provides employers with a refundable payroll tax credit equal to 50% of the qualified wages (wages of up to $10,000) paid to each employee after March 12, 2020, and before January 1, 2021. The credit is available to employers whose businesses where fully or partially shutdown due to the coronavirus or employers experiencing a 50% decrease in gross receipts when compared to the same quarter last year.  For employers with more than 100 employees, the credit is available for qualified wages paid to employees who are not working due to the virus.  For employers with 100 employees or less, the qualified wages of all employees (including those working) qualify for the credit.  Employers that take a small business interruption loan are not eligible for the credit.

 

  • Employers can defer paying the employer portion of social security taxes on wages paid from the date of enactment of the bill through the end of 2020. The deferred social security taxes would need to be paid over the following two years, with 50% due by December 31, 2021 and 50% due by December 31, 2022.  Similar rules apply to 50% of self-employment taxes.

 

  • Net operating losses arising in 2018, 2019 and 2020 can be carried back five years and used to obtain refunds. In addition, the provision limiting the amount of NOL carryovers that can be used to offset income to 80% of taxable income is suspended until 2021.  Thus, NOL carrybacks and carryovers can be used to offset 100% of taxable income in years prior to 2021.

 

  • The effective date of IRC Section 461(l), the provision limiting the ability of noncorporate taxpayers to use “excess business losses” to offset nonbusiness income, is pushed back to tax years beginning after December 31, 2020.

 

  • The amount of business interest that can be deducted under IRC Section 163(j) is increased to 50% of EBITDA (from 30% of EBITDA) for 2019 and 2020. In addition, taxpayers can elect to calculate their 2020 interest limitation using 2019 EBITDA (which will likely be higher than 2020 EBITDA, allowing them a higher interest expense deduction).

 

  • Fixes a technical error in the 2017 tax reform act that unintentionally required “qualified improvement property” to be depreciated over 39 years. The bill retroactively fixes the mistake by treating qualified improvement property as 15-year property for purposes of depreciation, thereby, also allowing such property to be eligible for 100% bonus depreciation.
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