Posted by Jeffrey Feingold on 03.28.20

President Trump has signed into law the historic $2 trillion relief bill known as the Coronavirus Aid, Relief and Economic Security (CARES) Act. This historic rescue plan includes $250 billion for direct payments to individuals and families, $250 billion in unemployment insurance benefits, $350 billion in small business loans and $500 billion in loans to distressed businesses. 

The CARES Act Includes the Following Key Provisions for Small to Medium Companies:

Direct Payments to Individuals

The CARES Act includes payments to lower and middle income individuals of $1,200 for each adult (up to $2,400 for married couples) and $500 for each child. The rebate phases out at $99,000 of adjusted gross income ($198,000 joint filers). This credit under the CARES Act is currently one-time, but policymakers may consider additional rebates if the downturn is prolonged.

Expansion of Unemployment Insurance

The Act extends coverage for unemployment insurance to four months, and increases the eligibility and amount provided by an extra $600 per week.

Paycheck Protection Program

This is the largest benefit available to small businesses. The CARES Act increases the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100 percent through December 31, 2020. The CARES Act also increases the maximum 7(a) loan amount to $10 million through December 31, 2020, and provides a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan. 

The Act specifies allowable uses of the loan includes: 

• Payroll support including paid sick, medical or family leave
• Costs related to the continuation of group health care benefits during those periods of leave
• Employee salaries
• Mortgage payments or rent (including rent under a lease agreement)
• Utilities
• Any other debt obligations that were incurred before the covered period
• Loan Forgiveness

The CARES Act establishes that the borrower will be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, this Act makes it so borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Employee Retention Credit

This provision would provide a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit would be available to employers whose (1) operations were fully or partially suspended, due to a COVID-19 related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees.

Additional Business Tax Provisions

The following are changes to tax codes aimed to assist businesses with cash flow:

• Increase to the net operating loss (NOL) carry back period to five years for NOLs arising in 2018, 2019, or 2020
• Make corporate alternative minimum tax credits immediately refundable
• Increase the limitation on business interest expense from 30 percent to 50 percent
• Increase to the corporate income limitation on charitable contributions to 25 percent
• Adjustments to the limitation on losses for taxpayers other than corporations
• Technical correction to allow for the immediate write off of qualified improvement to property
• Temporary exception from the alcohol excise tax for alcohol used in hand sanitizer

The CARES Act is a positive step forward to provide economic relief to individuals and small businesses facing hardship or economic ruin due to this crisis.

If you have any questions, or would like to discuss any of this stimulus,  please contact Tax Point Advisors at (800) 260-4138, or please leave us a message below.