Congress has passed a $2.2 trillion stimulus package to support the economy during the virus pandemic. The President has indicated that the bill will be signed immediately. The following are highlights of the bill:
Individual Highlights
Recovery Rebates
The rebate amounts are $1,200 for individuals, $2,400 for joint filers, with a $500 credit for each child. The threshold amount is based upon the 2018 adjusted gross income (unless a 2019 return has been filed) and the phaseout begins at $75,000 for single filers, $112,500 for head of households, and $150,000 for joint filers. The Secretary of the Treasury is directed to provide the rebate as rapidly as possible.
Retirement Plans
The bill waives the 10% penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. Coronavirus-related distribution is made to an individual or spouse of the individual diagnosed with COVID-19 with a CDC-approved test or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours. The tax on this early withdrawal can be paid over three years.
Charitable Contributions
The measure would create a $300 above-the-line individual charitable contribution allowance for individuals who don’t itemize their returns for tax years beginning in 2020.
For taxpayers who itemize, they will be allowed an unlimited itemized deduction for charitable contributions on their 2020 tax return.
Business Highlights
Payroll Tax Deferral
Payroll taxes due from the period beginning on the date the CARES Act is signed into law and ending on December 31, 2020, are deferred. The entirety of payroll taxes incurred by employers, and 50% of payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.
Net Operating Losses (NOL)
The bill allows for a five-year carryback of net operating losses arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend tax returns for tax years dating back to 2013 in order to take advantage of the carryback.
The bill also eliminates loss limitation rules applicable to sole proprietors and passthrough entities to allow them to take advantage of the NOL Carryback. All NOL’s before January 1, 2021 will not be subjected to the 80% limit.
Qualified Improvement Property (QIP)
The act fixes the oversight made on the TJCA bill which made QIP 39-year property and therefore not eligible for bonus. QIP property is now 15-year property and eligible for bonus depreciation. This correction is retroactive to September 27, 2017.
Employee Retention Credit
The bill will grant eligible employers a credit against employment taxes equal to 50% of qualified wages paid to employees who are not working due to employer’s full or partial cessation of business or a significant decline in gross receipts. The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters. The provision contains several requirements defining qualified employers. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.
The measure would establish a new Paycheck Protection Program to allow small businesses, nonprofits, and self-employed individuals to seek loans through the Small Business Administration’s 7(a) program. The measure will authorize $349 billion in total 7(a) lending from February 15 through June 30. These loans are designed to allow employers to retain their employees and allow them to continue to cover wages and other benefits.
Above is just a highlight of the bill. Please see this National Law Review article for a more detail analysis.
