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The Coronavirus Aid, Relief, and Economic Security Act (“CARES”) is a recently passed assistance package.
INDIVIDUAL PROVISIONS
Recovery Rebates (Refundable Tax Credit) – The CARES Act provides direct rebates of up to $1,200 for each qualified adult ($2,400 for married couples) and $500 per child. The full rebate amount is available if you have income at or below $75,000 per adult ($150,000 for married couples), phases out as income increases and is capped with income above $99,000 ($198,000 for married couples). No action is required on the part of the taxpayer in order to receive this rebate.
Retirement Plans – The CARES Act allows for distributions or loans from retirement accounts without the early distribution 10% penalty up to $100,000 if you, a spouse, or a dependent have been diagnosed with the virus or you have experienced adverse financial consequences for specific reasons. For loans, it also permits a 3-year repayment period with no penalty. If the amount is not repaid and taken as a distribution, then the income is spread over 3 years.
Charitable Contributions – The CARES Act is attempting to help charitable organizations and taxpayers allowing individuals an “above the line” deduction of up to $300 for individuals who do not itemize deductions.
Relief for Individuals with Tax Debt Obligations – The CARES Act allows the suspension of current taxpayer installment agreement payments due between April 1 to July 15, 2020. Payment due during this date as suspended until the extension date of July 15, 2020. If a taxpayer has been making these installment agreements payments via auto-pay, they will need to log in their account in order to suspend them. This will also require the taxpayer to reinstate it after the extension date.
Pandemic Unemployment Assistance Program – The CARES Act provides up to 39 weeks of combined federal and state unemployment assistance between January 27, 2020, and December 31, 2020, to individuals, including independent contractors, who are otherwise not eligible for, or have exhausted, other state or federal benefits. Also, new Federal Pandemics Unemployment Compensation provides an additional weekly $600 federally funded payment for up to four months to individuals already collecting state unemployment insurance payments.
Paid Leave – The CARES Act provides that Employees will receive up to 80 hours of paid sick leave and expanded paid child care leave for the care of their own health or to care for family members.
BUSINESS PROVISIONS
Net Operating Loss Carryovers – The CARES Act states that for taxable years beginning in 2019 or 2020, net operating loss carryovers (“NOLs”) are no longer subject to an 80% taxable income limitation, and NOLs from 2018, 2019, or 2020 can be carried back five years.
Interest Expense Limitation – For taxable years beginning in 2019 or 2020, the interest expense limitation in Code section 163(j) is increased to 50%, and taxpayers can use 2019’s adjusted taxable income for purposes of the 2020 calculation.
AMT Credits – Corporate AMT credits are 100% refundable in 2018 and 2019.
Payroll Tax Payments – The CARES Act permits employers to defer payment of the employers share of the Social Security tax (6.2%) paid over the following two years, with 50% of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022: employers would still be responsible for FICA tax on employee wages.
Employee Retention Credit – The CARES Act allows qualified business owners would be eligible for an employee retention credit, giving eligible employers a tax credit for keeping American workers employed. Employers may be eligible for a refundable credit up to 50% of qualified waged up to $10,000 per employee against applicable employment taxes. Note: The CARES Act Employer Retention Credit cannot be combined with Small Business Administration (SBA) loans.
Employee Paid Leave – The CARES Act allows for employees to receive up to 80 hours of paid sick leave and expanded paid child care leave. This is a dollar-for- dollar tax offset against payroll taxes and per the release be refunded as quickly as possible. The credit for employers is $511 per day and $5,110 in the aggregate, for a total of 10 days for an employee under quarantine or has Coronavirus symptoms and is seeking medical diagnosis and 2/3 the employee’s regular pay rate, up to $200 per day and $2,000 in the aggregate, for up to 10 days for caring for someone with the Coronavirus, or school closing or child care is unavailable.
SMALL BUSINESS LOAN PROVISIONS</big<
Paycheck Protection Program – The CARES Act enables employers (including self-employed individuals) with less than 500 employees to participate in an 8- week loan program for up to 250% of the monthly payroll brought about by the economic uncertainty as long as they maintain their payroll during the Cornavirus (COVID-19) emergency. These loans will be made available through commercial banks authorized to issue SBA loans. No personal guarantees or collateral are required on these non-recourse loans. As long as the employer maintains payroll, there is forgiveness available for the portion of the loans used to cover payroll costs, interest (not principal) on mortgage loans, utilities and interest on any other debt obligations incurred before the covered period. The maximum payroll is $10,000,000 while the loan amount is limited to $100,000 annualized per employee, including salary; wage; vacation, parental, medical, family or sick leave; retirement benefits; tips; health care benefits, etc. Seasonal businesses should calculate the 2.5 months’ payroll using the 12-week period beginning Feb. 15, 2019. Alternatively, the business may choose the period beginning March 1, 2019, and ending June 30, 2019. Seasonal businesses will multiply this average by 2.5. Employers cannot cut employees’ pay by more than 25%. In an attempt to bring back on payroll employees that may have already been furloughed, this loan program is retroactive back to February 15, 2020. What we found interesting was that the program removes the “Credit Elsewhere Test,” which usually required an extensive analysis to determine whether the borrower had the ability to obtain some or all of the requested loan funds from alternative sources, without causing undue hardship. That test could also have required them to utilize those alternative sources rather than obtain the SBA loan.
The loans have a maximum maturity of 10 years with interest rates for any portion of the loan that is not forgiven not to exceed 4%. Lenders are required to give borrowers a complete payment deferral on all principal, interest and fees of not less than 6 months and not more than 1 year on all loans under CARES.
Please note that any business that receives an Economic Injury Disaster Loan under Section 7(b) of the Small Business Act will not be eligible for CARES’ “payroll protection” loans.
The law calls for the SBA to implement regulations within two weeks of the effective date of the law. Stay tuned.
ADDITIONAL PERTINENT INFORMATION
Implications of Debt – Before taking on new debt, one must look at their current business plan and ask themselves the following questions:
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- Is there a strategic plan?
- What debt, does the company currently have?
- How is it being paid back?
- What are the payment terms?
A company must carefully weigh their options and have a payback plan in place. What’s best for one client, may not be in the best interest of another. Be mindful as debt reduces the value of a business and makes it harder to sell.
Business Interruption Insurance – Business Interruption Insurance coverage varies across policies, and thus it is advised that the policyholder closely review the policy to see if they qualify for business interruption insurance. Because no one could have predicted a global pandemic occurring hit is likely that there is no specific language that would indicate coverage for the Coronavirus.
Even if a business does not have business interruption insurance, it is possible that they may have coverage in some other type of area in the policy, including actions by civil authorities or interruption of the business’ supply chain. Here are some different types of insurance policyholders could potentially have:
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- Crisis Management Coverage – Times of crisis, such as a break-in or armed robbery, or some other shut down due to a communicable disease.
- Contingent Business Interruption Insurance – This is a type of business interruption insurance that covers “indirect” loss caused by the inability of a supplier to perform his/her obligations with the business owner due to no fault of that business owner, such as the lockdown of an entire city or state.
- Civil Authority Coverage – When businesses are interrupted by federal, state or city government mandate.
- Impossibility of Performance and Frustration of Purposes Coverage – When a business is unable to perform a contractual obligation through no fault of his/her own that they could not have foreseen.
Business interruption insurance will likely not be covered due to the Coronavirus as most policies require “direct physical loss” to your property in order to have the business interruption insurance activated. Complaints have already been filed with courts since insurance companies have already denied claims with the argument that they have received a direct physical loss and they should be covered since they were forced to shut down and have no access to their business. However, if the businesses are not completely shut down, and they can still partially operate, then businesses will not qualify. In the future businesses will want to make sure that business interruption insurance is worded correctly to not just include “physical damage.”
Internal Revenue Service Deadline Extensions – At this time, the Internal Revenue Service (IRS) has issued an extended tax deadline from April 15, 2020 to July 15, 2020. This means taxpayers not only have additional time to file their federal income tax, but may also defer federal income tax payments, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax. Taxpayers do not need to file any additional forms to qualify for this automatic federal tax filing and payment relief.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days per the IRS website.
Florida Department of Revenue Deadline Extensions – On March 26, 2020, Florida Department of Revenue issued Order of Emergency Waiver/Deviation to extend certain filing deadlines for Florida businesses. This order addresses February and March reporting periods for the following taxes and fees:
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- Sales and use tax, including discretionary sales surtax
- Tourist development tax
- Solid waste fees, including new tire fee, lead-acid battery fee, dry-cleaning gross receipts, and rental car surcharge
- Prepaid wireless E911 fees
For the February 2020 reporting period, the order waives the imposition of penalty and interest for those taxpayers who collected these taxes in February 2020 but were unable to meet the March 20 due date if the taxes are reported and remitted by March 31, 2020. Note: To meet the March 31 deadline, electronic payments must be initiated by 5:00 p.m. ET on March 30, 2020.
For the March 2020 reporting period, the order states taxpayers not adversely affected by the COVID-19 outbreak are required to continue to file and pay taxes collected during March 2020 on or before April 20, 2020.
State of Florida Annual Report Deadline Extension – The state has announced that the deadline to file the annual report has been extended from May 1, 2020 to June 30, 2020.
Weisberg Kainen Mark, PL
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