Authors: Sharon C. Lincoln and Eric W. Dyer
As the economic impact of COVID-19 continues to be felt throughout the United States, the federal government has provided $2.2 trillion in relief by enacting the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27.
The CARES Act is extraordinary in its amount and in its scope – providing relief to individuals and families, unemployed workers, and small and large businesses (including nonprofit organizations) in the form of tax relief, refundable tax credits, loans, and outright grants, with a specific focus on severely impacted sectors of the economy such as the aviation industry and hospitals. States, territories, tribal governments, and municipalities also are eligible for trillions of dollars of relief under the Act.
Generally, the tax relief and funding earmarked within the CARES Act are as follows:
Individuals
Putting money in the hands of individual taxpayers
Recovery Rebates: Direct payments will be made to individuals and families based upon income levels (as provided in the taxpayer’s most recently filed tax return). Payments will be made for up to $1,200 for individuals and $2,400 for married couples, with a $500 additional payment for each qualifying child. The amount of the benefit phases out for individuals with gross income in excess of $75,000 and married couples with gross income in excess of $150,000. Generally, these rebates will be issued automatically with no action required of the taxpayer.
Unemployment Benefits: Unemployment benefits are increased in terms of the length and amount of benefits. The Federal government is offering 13 weeks of benefits after state benefits expire and an additional $600 per week. In addition, the CARES Act creates a Pandemic Unemployment Assistance program for independent contractors, self-employed persons, and those participating in the “gig” economy, in order to ensure that they are not left out of the relief provided by the CARES Act.
Accessing Retirement Funds: Individuals and facilities directly impacted by COVID-19 – that is, those diagnosed or those suffering financial consequences as a result (note that this is very broad category and is meant to cover quarantine, lay-offs, inability to work because of child care, and the like) are able to access retirements funds without the standard penalties for early withdrawals of up to $100,000. However, these withdrawals must be used for covering COVID-19 expenses and must be repaid within three years or else any such withdrawals will be treated as income over a three-year period. Similarly, required minimum distribution rules are waived for certain defined contribution plans and individual retirement accounts (IRAs), allowing individuals to forgo distributions during 2020.
Small Businesses and Tax-Exempt Organizations
Making it easier for qualifying business to obtain loans through the Small Business Administration (“SBA”) in order to keep operations running and retain employees
Paycheck Protection Program: This program is available until June 30, 2020, and is accessible to any business entity, section 501(c)(3) nonprofit organization, section 501(c)(19) veterans organization, and Tribal business concern that has no more than 500 employees or meets the size standard established by the SBA (based upon the relevant industry in which the entity operates). Note that this program is not available to non-charitable tax-exempt organizations (apart from veterans organizations) such as social welfare organizations, agricultural cooperatives, or business leagues.
This program is also available to sole proprietors, independent contractors, and self-employed individuals.
An eligible entity is able to receive a loan of up to $10 million through Paycheck Protection Program. This is intended to cover payroll expenses, such as paid vacation time, sick leave, and health care benefits, and certain other obligations such as mortgage interest, rent, and utilities.
The Paycheck Protection Program offers a certain degree of loan forgiveness so long as the amount forgiven was solely used to maintain payroll and pay mortgage interest, rent, and/or utilities. The amount eligible for forgiveness relates to amounts paid during the first eight weeks of the loan and will be reduced in proportion to the number of employees laid off during this period. Amounts forgiven under this program are not taxable.
In addition to these opportunities, the Traditional SBA Lending Program and Economic Injury Disaster Loan (“EIDL”) lending programs have been expanded and revised to assist small businesses, nonprofit organizations, and agricultural cooperatives affected by COVID-19.
Promoting charitable donations
Charitable Deductions: Individuals that do not itemize deductions can now claim an above the line $300 cash charitable deduction.
Charitable Contributions: Individuals that itemize deductions and corporations have incentives to increase charitable contributions. The CARES Act eliminates the 60% limitation for cash donations for calendar year 2020 so it is possible for an individual taxpayer to offset up to 100% of his or her taxable income with charitable contributions. The Act also raises the cap on corporate level deductions from 10% to 25% of the corporation’s taxable income and increases the food limit deductions from 15% to 25% of the corporation’s taxable income.
These special provisions regarding charitable donations do not apply to non-cash donations or donations of any sort to donor-advised funds or to supporting organizations described in IRC section 509(a)(3).
