Key Tax Aspects of The CARES Act- Stimulate Package 2020.

On March 27, 2020, President Trump has signed the “Coronavirus Aid, Relief and Economic Security” Act, known as the CARES Act, into law.  The CARES Act offers more robust support to both individuals and businesses impacted by the COVID-19.  The Act includes:   

 

 1- RELIEF FOR INDIVIDUALS AND FAMILIES:

 ◈ Recovery rebate: 

♦ The Act provides a $1,200 tax credit for individuals ($2,400 for joint files), plus $500 for each child.

♦ The rebate is phased out at $75,000 for individuals, $150,000 for joint filers, and 112,500 for heads of household. The phase-out rate is $50 per $1000 earned.

♦ The rebate will be treated as a refundable credit against the 2020 tax liability.

◈ Extra unemployment payment:

♦  Taxpayers, who are out-of-work, will receive $600 per week for four months from the federal government on top of the unemployment amount received from the state. The Act also extends 13 weeks of unemployment insurance.

♦  Self-employed taxpayers, freelancers, and contractors are eligible for this benefit until the end of this year.

◈  Retirement plans:

Taxpayers who have been diagnosed with CODID 19 or experience adverse financial consequences because of the pandemic, can withdraw up to $100,000 from a retirement plan without early withdrawing penalty

◈ Student loan:

Taxpayers can exclude up to 5,250 employer-provided student loans from their taxable income.

◈ Charitable contribution:

The Act increases the existing cap on charitable deductions and creates a $300 above- the- line charitable deduction for taxpayers taking the standard deduction.

 

2-RELIEF FOR SMALL BUSINESSES:

◈ Loan and loan forgiveness:

♦ Small businesses with less than 500 employees may apply for a loan up to $10 million or 2.5 times the average total monthly payroll cost, whichever is lesser.

♦ Loans may be forgiven if they are used for payroll, rent, interest payment on mortgages, and utilities during the period from March 1 to June 30, 2020, covered period.

♦ The amount of loan forgiveness shall be reduced proportionally by any reduction in the number of full-time employees during the covered period compared to the prior year,  and 25% or greater reduction of the compensation amount.

♦ The amount which has been forgiven shall be treated as a default. The forgiven loan shall be excluded from gross income.

◈ Delay of payment of employer payroll tax:

The Act delays payment of 50% of 2020 employer payroll tax until Dec 31, 21, and the other 50% to December 31, 2022.

◈ Net Operating Loss:

Net Operating Loss (NOL) arising in 2018, 2019, and 2020 can carry back five years.  80% income limitation for NOL deduction for 2021 is temporarily repealed.

◈ Increase of interest expense deduction:

The Act increases the deduction limit to 50% of the business adjusted taxable income for 2019 and 2020.

◈ Alternative Minimum Tax (AMT) Credit Refunds:

The corporate AMT credit will be fully refundable in 2018 and 2019.  The Act instructs the IRS to process the refund claims within 90 days of filling.

 

Final Thoughts

The CARES Act provides much-needed relief for individuals and businesses to fight against the virus and the damage it has inflicted on the economy.  We are available to assist you in reviewing how the CARES Act may affect you and your business and can help you find ways to claim available funding. If you have any question or inquiry, please contact:

Thanhdung Arnold, CPA
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832-276-8805

 

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