UPDATE: March 27, 2020, 1:45 p.m. This bill has now passed the House and met the president's signature.
Late last night, the Senate unanimously approved a $2 trillion stimulus package aimed at helping individuals and businesses affected by coronavirus. It now moves to the House of Representatives for a final vote on Friday morning. President Trump has vowed to sign it.
Though we knew of several key provisions of the bill yesterday and covered them here, legislative text of the final deal wasn’t released until just before the final vote. The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a host of tax measures as well as immediate financial relief to individuals and businesses.
The key elements of the proposal are:
- Direct cash payments to Americans.
The bill provides for payments to taxpayers — “recovery rebates” — which are being treated as advance refunds of a 2020 tax credit. Individuals making up to $75,000 annually are expected to receive a check for $1,200. Couples making up to $150,000 would receive $2,400. Households with children will receive an additional $500 per child. The payments would decrease for those making more than $75,000, with an income cap of $99,000 per individual or $198,000 for couples.
- A significant increase in unemployment insurance.
The bill is rumored to increase the maximum unemployment benefit that a state gives to a person by $600 per week for four months. The bill also would extend the benefit to those who typically do not qualify, such as gig economy workers, furloughed employees, and freelancers.
- $350 billion in assistance to small businesses.
- $500 billion in aid to corporations, including airlines and cruise lines.
- $150 billion for state and local stimulus funds.
- $100 billion in assistance for hospitals.
Trump and his family, as well as other top government officials and members of Congress, from getting loans or investments from Treasury programs in the stimulus.
Beyond that immediate relief, a large number of tax provisions are included in the bill. These include:
Payroll tax credit refunds: The bill provides for advance refunding of the payroll tax credits enacted last week in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS has been instructed to waive any penalties for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit.
Employee retention credit: The bill creates an employee retention credit for employers that have closed due to the coronavirus. Eligible employers -- those who were carrying on a trade or business during 2020 and were ordered closed by an appropriate governmental authority or whose gross receipts are less than 50% of their gross receipts for the same quarter in the prior year are also eligible (until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year) -- are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.
Retirement plans: Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the normal 10% additional tax for early distributions. Eligible distributions can be taken up to Dec. 31, 2020. Those distributions may be repaid within three years. An eligible taxpayer is one who has been diagnosed with COVID-19 disease or whose spouse or dependent has been diagnosed with COVID-19 or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care. Any resulting income inclusion can be taken over three years. The bill also allows loans of up to $100,000 from qualified plans, and repayment can be delayed.
The bill temporarily suspends the required minimum distribution rules for 2020.
The bill delays 2020 minimum required contributions for single-employer plans until 2021.
Charitable deductions: The bill creates an above-the-line charitable deduction for 2020 (not to exceed $300). The bill also modifies the AGI limitations on charitable contributions for 2020, to 100% of AGI for individuals and 25% of taxable income for corporations. The bill also increases the food contribution limits to 25%.
Payroll tax delay: The bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021. The remaining 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
Net operating losses: The bill temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).
Excess loss limitations: The bill repeals the excess loss limitation that was added to the Code by the Tax Cuts and Jobs Act, and it disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).
Corporate alternative minimum tax (AMT): The bill makes the AMT credit for corporations a refundable credit for 2018 tax years.
Interest limitation: For tax years beginning in 2019 and 2020, the adjusted taxable income percentage increases from 30% to 50%. Taxpayers can also elect to use 2019 income in place of 2020 for the computation.
Qualified improvement property: The bill also makes technical corrections regarding qualified improvement property by making it a 15-year property.
Health plans: The rules for high-deductible health plans (HDHPs) are amended to allow them to cover telehealth and other remote care services without charging a deductible.
Aviation taxes: A host aviation excise taxes are suspended until 2021.
The plan is to pass the bill by a voice vote on Friday, which would prevent the need for House members to return to Washington for a recorded roll call vote. Given the overwhelming support in the Senate and the president’s vow to sign it, we expect it to pass. Of course, we’ll inform you when it does.