COVID-19 News: CARES Coronavirus Relief Act - Interpreting Various Programs
Friday, March 27, 2020
(Manhattan Beach, California - March 27, 2020) -- On March 27th, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES, H.R. 748), which is intended to help Americans deal with the economic impact and health crisis brought on by the outbreak of COVID-19.
The Act will infuse $2 trillion dollars into all sectors of the economy, including healthcare, financial firms, airlines, and other businesses small and large, as well as directly to individuals.
Among the provisions included in the Act are those to provide rebate checks to many Americans, delay employer payroll taxes, greatly expand unemployment assistance, temporarily relax several provisions of the 2017 Tax Cuts and Jobs Act (TCJA), and provide a technical correction for the TCJA drafting error regarding qualified improvement property.
This Act is the third in a series of relief packages wrought by lawmakers on Capitol Hill. Administrative guidance is expected on the more practical ramifications of the Act in the days and weeks to come. IBPA is watching developments with the help of our accounting firm, CohnReznick, and will provide updates as they become available. Read on for highlights of some of the programs that will be of interest to independent book publishers contained in the final version of the Act.
Paycheck Protection Program
The Act appropriates $349 billion for the "Paycheck Protection Program" to help small businesses (including 501(c)(3) and (19) organizations and certain tribal business concerns) with fewer than 500 employees, and businesses in NAICS Sector 72 (Accommodation and Food Services) with fewer than 500 employees per location, cover payroll (for employees making up to $100,000 per year) and other expenses from February 15, 2020, to June 30, 2020.
Sole proprietorships, independent contractors, and other self-employed individuals are also eligible for loans. The loan amount is a formula based on the payroll costs incurred by the business, with a maximum loan of $10 million. These loans could possibly be forgiven in certain situations. Loans must be used for payroll, health care benefits, lease, interest on mortgage, rent, and utilities. Recipients must also not be receiving duplicative funds from another SBA program.
The Act provides billions for a "Public Health and Social Services Emergency Fund," for programs including public health and social services, hospitals, and healthcare providers facing COVID-19-related expenses and lost revenue.
There are many provisions covered under this section of the Act, most notably those for mitigating or preventing the potential for drug and supply shortages; increasing healthcare coverage of testing and vaccines for COVID-19 patients; allowing certain telehealth to be covered by high-deductible health plans (HDHP); paving the way for certain government authorities to partner with private institutions to drive pharmaceutical drug innovation and development; establishing a Ready Reserve Corps for public health emergencies; and relaxing certain telehealth requirements to accommodate for enhanced usability.
The Act also includes reauthorizations for the Healthy Start program, Health Resources and Services Administration grant programs for telehealth and rural health, and certain healthcare workforce programs. The Act provides extensions for certain Medicare programs, Medicaid programs, public health programs, and other health programs.
Individual Tax Incentives
- Recovery checks to individual taxpayers: To provide immediate cash assistance to Americans and their families, the Act would provide checks of up to $1,200 ($2,400 for those married filing jointly) to many U.S. taxpayers. The amounts paid would be increased by $500 for each of the taxpayer’s qualifying children. Treasury Secretary Steven Mnuchin has indicated that the goal was to issue payments to eligible taxpayers within three weeks of enactment, but actual timing was not known as of the writing of this alert.
- The payments are reduced for higher-income taxpayers; they begin phasing out for taxpayers with adjusted gross income (AGI) of $75,000 for single, $112,500 for head-of-household filers, and $150,000 for those married filing jointly. The IRS would base these amounts on the taxpayer’s 2019 tax return, or 2018 tax returns if 2019 has not yet been filed.
- Penalty waived for early withdrawal from retirement funds and temporary waiver of required minimum distributions: Individuals would be able to withdraw up to $100,000 from qualified retirement accounts for coronavirus-related purposes without the regular 10 percent penalty. Additional relief is provided in that the income from these distributions would be subject to tax over three years. Individuals may recontribute amounts withdrawn to eligible retirement funds within three years (regardless of that year’s contribution limit).
- Taxpayers would also be temporarily relieved of the requirement to take temporary minimum distributions from certain retirement plans and accounts.
Business Tax Incentives
- Employee retention credit for employers closed because of COVID-19:The Act provides a refundable payroll tax credit for each calendar quarter, beginning March 13, 2020, through Dec. 31, 2020, equal to 50 percent of wages paid to employees during the outbreak by employers whose operations were fully or partially closed due to a COVID-19-related shut-down order, or whose gross receipts declined by more than 50 percent compared to the same quarter in the prior year.
- The credit is based on qualified wages paid to employees, and provided for the first $10,000 of compensation paid to an eligible employee, including health insurance.
- For employers with 100 or fewer employees, all employee wages are qualified wages and eligible for the credit, regardless of whether the business is subject to shut-down order. For employers with more than 100 full-time employees, qualified wages are those paid to employees when they are not providing services because of COVID-19-related circumstances as described above (i.e., full or partial closure, or a 50 percent gross receipts decline).
- Taxpayers are not eligible for this credit if they take a small business interruption loan.
The federal government is currently finalizing the details and protocols about how and when different programs and relief will be implemented.
Although details are still being finalized, some documentation may be required when applying for a program when it becomes available. If you believe that you will qualify for relief from the CARES Act, it may be helpful for you to gather the following information about your business:
- 2019 Payroll — including the last 12 months of payroll
- 2019 Employees — 1099's for 2019 employees and independent contractors that would otherwise be an employee of your business. (Note: Do NOT include 1099's for services)
- Healthcare Costs — all health insurance premiums paid by the business owner under a group health plan.
- Retirement — your company retirement plan funding paid for by the company.
The information above is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties.