Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act
Author Randy Johnston
Publisher CPA PRACTICE ADVISOR
Date Published 03.29.2020

The following is a summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act:

This post summarizes the developments of the most massive stimulus bill in American history, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the COVID-19 coronavirus in the United States. Reuters has a summary posted here.

Even though the program passed as a $2.2 trillion program, the impact is closer to $7 trillion based on direct relief, grants, and government-supported loans. Some of the key provisions include:

Tax Cuts for business and individuals – approximately $300 billion

·        A refundable 50 percent payroll tax credit for businesses affected by the coronavirus, to encourage employee retention. Employers would also be able to defer payment of those taxes if necessary. This retention tax credit is for eligible employers that continue to pay employee wages while their operations remain fully or partially suspended as a result of specific COVID-19-related government orders

  • Loosened tax deductions for interest and operating losses
  • Suspension of penalties for people who tap their retirement funds early
  • Tax write-offs to encourage charitable deductions and encourage employers to help pay off student loans

Businesses and other employers’ programs

  • Over $400 billion in grants for industry sectors include airlines and travel, hospitals, and education
  • Nearly $400 billion to support American small businesses for essentials like salaries, occupancy costs, and utilities
  • Provisions that impact small business most
    • Employee Retention Payroll Tax Credit
      • Employers who are at risk for closure due to COVID-19 can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for an employer whose operations were fully or partially suspended due to a COVID-19 related shut-down order from an appropriate governmental authority, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year
      • The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee
      • This credit is also available to nonprofit organizations
      • Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit
    • Delay of Employment Tax Payments
      • Deferral of the employer portion of payments of certain payroll taxes
      • The Act allows employers and self-employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020. Fifty percent of the deferred tax payments will be due by December 31, 2021, and the remaining portion due by December 31, 2022. Businesses who have debt forgiven from Payroll Protection Program loans (covered below) are not allowed to delay their payments
    • Net Operating Loss/Excess Business Loss Changes
      • Modification of net operating loss (NOL) and limitation on losses rules and deduction limitation on business interest
      • The Tax Cuts and Jobs Act limited net operating loss deductions. The CARES Act has amended those provisions to allow net operating losses incurred in 2018, 2019, and 2020 to be fully deductible, without the 80% limitation. The net operating losses from 2018, 2019, and 2020 are also allowed to now be carried back five years to allow businesses to claim refunds of taxes paid in prior years
      • Owners of pass-through entities are no longer subject to excess business loss provisions for 2018, 2019, and 2020. They will be able to take full advantage of pass-through losses, as available
    • Business Interest Deduction
      • The Tax Cuts and Jobs Act had limited the deductibility of business interest to 30% of taxable income. The allowable deduction under the CARES act has been increased to 50%
    • Qualified Improvement Property
      • Businesses will be able to write off all of the costs of certain interior renovations as 15-year property and eligible for expensing in nonresidential real property instead of using straight-line depreciation over a 39-year period
      • Qualified improvement property technical correction, allowing qualifying interior improvements of buildings to be immediately expensed rather than depreciated over 15 years

Economic Injury Disaster Loan

Individuals