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On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136 (the “CARES Act” or the “Act”). The legislation is intended to provide relief for individuals and businesses that have been negatively impacted by the coronavirus outbreak. Below are summaries of the key provisions of the Act.

Paycheck Protection Program

Recovery Rebates & Compliance

Interest Deductibility under IRC 163(j)

Bonus Depreciation Technical Correction for Qualified Improvement Property

Net Operating Loss Rules

Employee Retention Credit & Payroll Tax Deferral

Retirement Plans

Charitable Giving

Aid for Students

Pandemic Unemployment Assistance

Paycheck Protection Program

• Background
  • The Paycheck Protection Program (the “Program”) provides forgivable Small Business Administration (SBA) loans to certain eligible businesses and individuals made during the period beginning on February 15, 2020 and ending on June 30, 2020.
  • For this Program, the CARES Act provides an authorization level of $349 billion.
  • Eligible businesses and individuals can apply for the Program at any lending institution that is approved to participate in the Program through the existing SBA 7(a) lending program and at any additional lender approved by the SBA and Department of Treasury.
• Eligibility for Covered Loan
  • Any small business, small business concern, non-profit organization or tribal business concern which employs 500 or less employees during the period beginning Feb. 15, 2020 and ending June 30, 2020 (must have been in operation as of Feb. 15, 2020 and have paid salaries to employees or made payments to independent contractors)
  • Individuals who during the period beginning Feb. 15, 2020 and ending June 30, 2020 operated as a sole proprietorship or independent contractor and eligible self-employed individuals
  • Employees include individuals who work full-time, part-time or on some other basis
  • Any business assigned an NAIC System Code beginning with 72 which has multiple locations can receive a covered loan provided at no location are there more than 500 employees
• Allowable Uses of Covered Loan
  • Payroll costs (including cash tip or equivalent, vacation pay, dismissal or separation pay, any retirement benefit, State or local tax assessed on the compensation of employees and payments to a sole proprietor or independent contractor that is a wage, commission, income, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the period beginning Feb. 15. 2020 and ending June 30, 2020)
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
  • Employee salaries, commissions, or similar compensation (employee compensation shall not be an allowable in excess of an annual salary of $100,000 prorated over the period beginning Feb.15, 2020 and ending June 30, 2020)
  • Payments of interest on mortgage obligations (prepayment or regular payments of principal is not a permitted use)
  • Rent payments
  • Utilities
  • Interest on any other debt obligations incurred before Feb. 15, 2020
  • Any other allowable purpose under the Small Business Administration Act
• Amount of Covered Loan
  • The maximum loan amount is the lesser of:
    • (a) The sum of:
      • (i) 2.5 times the average total monthly payments by the applicant for payroll costs incurred during the 1-year period before the date on which the loan is made (or, during the period beginning January 1, 2020 and ending on February 29, 2020 for those applicants that were not in business during the period of February 26, 2019 through June 30, 2019); and
      • (ii) the outstanding amount of an SBA economic injury disaster loan that was made during the period beginning on January 31, 2020 and ending on the date covered loans were made available (such loans may be refinanced as part of a covered loan); or
    • (b) $10 million
  • For purposes of calculating the maximum loan amount, payroll costs include:
    • The sum of payments of any compensation with respect to employeesthat is a:
      • Salary, wage, commission, or similar compensation;
      • Payment of cash tip or equivalent;
      • Payment for vacation, parental, family, medical, or sick leave;
      • Allowance for dismissal or separation;
      • Payment required for the provisions of group health care benefits, including insurance premiums;
      • Payment of any retirement benefits; or
      • Payment of State of local tax assess on the compensation of employees
    • The sum of payments of any compensation to or income of a sole proprietoror independent contractor that is a:
      • Wage, commission, income, net earnings from self-employment, or similar compensation; and
      • That is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period (February 15, 2020 through June 30, 2020)
    • For purposes of calculating the maximum loan amount, payroll costs do notinclude:
      • The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period (February 15, 2020 through June 30, 2020);
      • Payroll taxes, railroad retirement taxes, and income taxes during the covered period (February 15, 2020 through June 30, 2020);
      • Any compensation of an employee whose principal place of residence is outside of the United States; and
      • Qualified sick leave wages and qualified family leave wages for which a credit is allowed under the new Families First Coronavirus Response Act.
    • Forgiveness of Covered Loan
      • The CARES Act provides for the possibility of total forgiveness of loans made during the period beginning on February 15, 2020 and ending on June 30, 2020 under the Program upon the submission of an application to the lender servicing the covered loan.
      • A borrower may have its loan forgiven in an amount equal to the sum of the following costs incurred and payments made by the borrower during the 8-week period beginning on the date of the origination of the loan:
        • Payroll costs (including the payroll costs included in calculating the amount of the loan, as listed above, and excluding the payroll costs excluded from such calculation);
        • Payments of interest (but not principal or prepayments) on any mortgage existing before February 15, 2020;
        • Payments of rent on any lease agreement in force before February 15, 2020;
        • Payments on any utility (electricity, gas, water, transportation, telephone, or internet access) for which service began before February 15, 2020
      • The amount forgiven may not exceed the principal amount borrowed.
      • The forgiven loan amount will be excluded from gross income for tax purposes.
      • The Act indicates the SBA will pay to the lender the amount of loan forgiveness, plus any interest accrued through the date of payment.  The Act does not condition the SBA’s payment of interest on any amount or percentage of loan forgiveness.
    • Unforgiven Portions of Loans
      • Portions of loans not forgiven are payable over a maximum of 10 years from the date on which the borrower applies for loan forgiveness, will bear interest at a maximum rate of 4%, and will continue to be guaranteed by the SBA.
      • Loan payments will be deferred for at least 6 months and up to one year starting on the origination of the loan (including payment of principal, interest, and fees)
      • The SBA is required to provide additional guidance to lenders on the deferment process within 30 days of the enactment of the CARES Act.
    • Reductions of Loan Forgiveness
      • The amount of loan forgiveness may be reduced in the event a borrower reduces: (1) the total number of employees (on a full-time equivalent (FTE) basis); or (2) the wages of an employee.
        • (1)   Reduction in Total FTE Employees
          • The amount of loan forgiveness is reduced by the percentage by which the average monthly number of FTE employees during the period from Feb. 15, 2020 and June 30, 2020 is less than the average monthly number of FTE employees during either: (a) the period from February 15, 2019 tod June 30, 2019; or (b) the period from January 1, 2020 to February 29, 2020.
          • The borrower chooses which comparison period to apply.
          • For seasonal employers, the applicable comparison period is prescribed to be from February 15, 2019 to June 30, 2019.
        • (2)   Reduction in an Employee’s Salary/Wages
          • The amount of loan forgiveness is also reduced by the amount of any decrease in total salary or wages paid to an “eligible employee” during the covered period.
          • An eligible employee is an employee who did not receive in any single pay period in 2019 wages or salary at an annualized rate of pay of more than $100,000.
          • The reduction is computed by comparing twenty-five (25%) percent of the eligible employee’s salary/wages in the most recent full quarter to the salary/wage decrease during the covered period.
          • Under the current text of the Act, the covered period is not a full quarter, which would result in reductions of loan forgiveness which may not have been intended.  Further guidance or correction on this issue is necessary.
        • There is no ordering rule in the Act, so it is unclear which reduction is applied first.
      • Sense of the Senate
        • The CARES Act states it “is the sense of the Senate” that the SBA should issue guidance to lenders to ensure that the processing and disbursement of covered loans prioritizes small business concerns and entities in undeserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals, women, and business in operation for less than 2 years.
        • Additional Guidance
          • • Since the enactment of the CARES Act, the SBA and Treasury have issued additional guidance on the implementation of the Program.
            • The guidance clarifies a number of issues, such as:
              • Aggregate payroll costs can be calculated based on costs over the last 12 months or based on costs from calendar year 2019;
              • Payments by applicants to independent contractors and sole proprietors are not included in the calculation of payroll costs;
              • The exclusion of compensation in excess of $100,000 annually from the calculation of payroll costs applies only to cash compensation, not to non-cash benefits; and
              • The amount that may be forgiven includes the principal of the loan as well as any accrued interest.

Recovery Rebates & Compliance

• Eligibility
  • All U.S. residents or citizens with adjusted gross income under $75,000 ($112,500 for head of household and $150,000 married), based on their 2019 tax return (or their 2018 tax return if they have not yet filed a 2019 tax return) are eligible for the full rebate, unless:
    • They are the dependent of another taxpayer; or
    • They do not have a work-eligible Social Security Number.
  • Amount of Rebate
    • Individuals can receive a maximum rebate of $1,200.
    • Married couples can receive a maximum rebate of $2,400.
    • There is also an additional $500 rebate available for each qualifying child.
  • Qualifications of a “Child”
    • Any child who is a qualifying child for the purposes of the Child Tax Credit is also a qualifying child for the purposes of the recovery rebate.
    • In general, a child is any dependent of a taxpayer under the age of 17.
    • College-aged children who are still claimed as dependents do not count as qualifying children. The additional $500 per child is limited to children under 17.
  • Partial Rebates & Phase Outs
    • Taxpayers with adjusted gross income over $75,000 ($112,500 for head of household and $150,000 married) are eligible to receive a partial rebate.
    • The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold.
    • The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
    • For a typical family of four, the amount is completely phased out for those with adjusted gross incomes exceeding $218,000.
  • Loss of Income from 2019 to 2020
    • If income was above the threshold in 2019, but the individual been laid off or seen his or her income go down in 2020 due to the corona virus, then the individual would still receive a partial rebate based on his or her 2019 tax return.
    • However, the rebate is actually an advance on a tax credit that the individual may claim on his or her 2020 tax return.
    • If the individual’s income is lower in 2020 than in 2019, any additional credit the individual is eligible for will be refunded or reduce his or her tax liability when her or she files their 2020 tax return.
  • Low Income Individuals
    • Individuals with little to no income or those on means-tested federal benefits (such as SSI) are eligible for a recovery rebate.
    • Yes, there is no qualifying income requirement or means-testing. Even individuals with zero income are eligible for a rebate.
  • Seniors & Veterans
    • Seniors whose only income is from Social Security or veterans whose only income is a veterans’ disability payment are eligible for the rebate, as long as they are not the dependent of another taxpayer.
    • The Act also allows the IRS to base a rebate on Form SSA-1099, Social Security Benefit Statement or Form RRB-1099, in order to locate and provide rebates to low-income seniors who normally do not file a tax return.
    • However, seniors are still encouraged to file their 2019 tax return to ensure they receive their recovery rebate as quickly as possible.
  • Taxability of Rebate
    • The rebate is not taxable.
    • The rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and not considered income.
  • Increase in Income from 2019 to 2020
    • If the rebate based on an individual’s 2019 return is larger than what it would be based on the 2020 return, the rebate does not have to be paid back.
  • Receipt of Rebate
    • For the vast majority of Americans, no action on their part will be required to receive a rebate check.
    • It appears that individuals receiving Social Security benefits will receive their Recovery Rebate in the same account they receive their Social Security benefits.
    • The Act also authorizes Recovery Rebate payments to be made to the account into which a taxpayer’s 2018/2019 refund was deposited.
    • Other payments will be sent to the last known address on file.
  • Taxpayers who have not filed a Tax Return for 2019 or 2018
    • The best way to ensure the receipt of a recovery rebate is to file a 2019 tax return if not already filed.
    • The IRS provides a free filing service online (https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free).
    • The Act also instructs the IRS to engage in a public campaign to alert all individuals of their eligibility for the rebate and how to receive it if they have not filed either a 2019 or 2018 tax return.
  • Taxpayers with Past Due Debts
    • Rebates will not be reduced if a taxpayer has a past due debt to a federal or state agency, or owes back taxes.
    • The Act turns off nearly all administrative offsets that ordinarily may reduce tax refunds for individuals who have past tax debts, or who are behind on other payments to federal or state governments, including student loan payments.
    • The only administrative offset that will be enforced applies to those who have past due child support payments that the states have reported to the Treasury Department.

Interest Deductibility under IRC 163(j)

• Background
  • The Tax Cuts and Jobs Act of 2017 (“TCJA”) replaced the earnings stripping rules of Internal Revenue Code (“IRC”) Section 163(j) with a business interest deduction limitation for all taxpayers.
  • Under this limitation, the business interest deduction for a tax year cannot exceed: (1) the taxpayer’s business interest income for the tax year; (2) plus thirty (30%) percent of the taxpayer’s adjusted taxable income for the tax year which cannot be less than zero; and (3) plus the taxpayer’s floor plan financing interest for the tax year.
• CARES Act Changes
  • The CARES Act makes the following temporary and retroactive changes to the TCJA revised IRC 163(j):
    • The thirty (30%) percent of the taxpayer’s adjusted taxable income limitation is changed to fifty (50%) percent for tax years beginning in 2019 and 2020.
  • The following special rules apply to Partnerships:
    • The above fifty (50%) percent increase in the taxpayer’s adjusted taxable income limitation will not apply to partners in partnerships for 2019, but will only apply in 2020.
    • Notwithstanding the above exclusion for partners in partnerships for 2019, if the partnership does not elect out of the increased fifty (50%) percent limitation for tax years beginning after 2019, then the partners will treat any excess business interest of the partnership allocated to the partner as follows as follows:
      • Fifty (50%) percent of the excess business interest will be treated as paid or accrued by the partner in the partner’s first tax year beginning in 2020 and is not subject to any limits in 2020.
      • Fifty (50%) percent of the excess business interest will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner (or the partnership is no longer IRC 163(j)).
    • Election out of the fifty (50%) percent increased limitation:
      • Taxpayers may elect out of the fifty (50%) percent increase for any tax year by making an election as prescribed by the Internal Revenue Service (IRS).
      • The election can only be revoked with IRS consent once made.
      • For partnerships, the election must be made by the partnership and can be made starting with tax years beginning in 2020.
    • Election to calculate 2020 interest limitation using 2019 adjusted taxable income:
      • Taxpayers can elect to calculate the interest limitation for the taxpayer’s tax year beginning in 2020 using the adjusted taxable income for the taxpayer’s last tax year beginning in 2019 as the relevant base.
      • For partnerships, the election must be made by the partnership.
      • If the election is made for a tax year that is a short tax year, then the adjusted taxable income for the taxpayer’s last tax year beginning in 2019 is prorated for the amount of months in the short taxable year.

Bonus Depreciation Technical Correction for Qualified Improvement Property

• Background
  • IRC 167(a) allows as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or property held for the production of income.
  • Prior to the TCJA, IRC 168(k), the “bonus depreciation deduction”, allowed a deduction equal to fifty (50%) percent of the adjusted basis of the qualified property for the taxable year in which the qualified property was placed in service.
• TCJA Amendment
  • The TCJA amended IRC 168 to allow for one hundred (100%) percent additional first-year depreciation deductions for certain qualified property.
  • The TCJA eliminated pre-existing definitions for: (1) qualified leasehold improvement property, (2) qualified restaurant property, and (3) qualified retail improvement property, and replaced those definitions with one category called qualified improvement property.
  • The fifteen (15) year recovery period was not reflected in the TCJA, making qualified improvement property ineligible for the IRC 168 one hundred (100%) percent additional first-year depreciation deductions.
• CARES Act Correction
  • The CARES Act provides the long awaited technical correction to the TCJA to provide that qualified improvement property is a fifteen (15) year property and therefore eligible for the IRC 168 one hundred (100%) percent additional first-year depreciation deductions.
  • Qualified property is also assigned a twenty (20) year class life for the Alternative Depreciation System.
  • This technical correction is effective for property placed in service after December 31, 2017.
  • Taxpayers may amend their tax returns for earlier tax years to take advantage of the one hundred (100%) percent additional first-year depreciation deductions for qualified improvement property.

Net Operating Loss Rules

• Background
  • The CARES Act allows taxpayers who experienced net operating losses to carryback the losses for five (5) years.
  • This can result in such taxpayers receiving refunds within ninety (90) days.
  • The CARES Act also eliminated the $250,000 ($500,000 for married couples filing jointly) limit on individuals’ ability to deduct excess business losses against non-business income.
• CARES Act Net Operation Loss Provisions
  • A net operating loss (NOL) is defined as the excess of the allowable deductions over gross income, subject to certain modifications.
    • An NOL could historically be carried back to offset prior years income, allowing the taxpayer to get a refund of some or all of the taxes paid in the prior years.
    • To the extent not fully utilized, the NOL could be carried forward to offset income in those years.
    • While the carryback and carry forward periods have varied over the years, at the time of the TCJA, the carry back period was two (2) years and the carry forward period twenty (20) years.
    • The taxpayer could elect to forego the carryback period and just carry the NOL forward.
    • Prior to the TCJA, taxpayers could utilize a carryback or carryforward to offset the taxpayers entire net income (subject to any other limitations that might apply, such as the passives activity and at-risk rules).
  • TCJA made the following changes to the above rules:
    • The amount of the NOL deduction is equal to the lesser of the aggregate of the NOL carrybacks and carryovers to such year or 80% of taxable income computed without regard to the NOL. The result is that taxpayers could not fully recoup all the taxes paid in the carryback/forward years even if the NOLs would have otherwise offset the entire taxable income.
    • NOL carrybacks were eliminated except for farming losses and losses of property and casualty insurance companies.
    • Individuals could not deduct excess business losses (EBL) against non-business income. EBL is the excess of (1) the taxpayer’s aggregate trade or business deductions for that year over (2) the aggregate of the taxpayer’s business gross income or gain plus $250,000 ($500,000 for a married taxpayer filing jointly). Unused EBL is treated as an NOL.
  • The CARES Act suspended changes made by the TCJA as follows:
    • It temporarily suspends the eighty (80%) percent of taxable income limitation to allow an NOL to fully offset taxable income.
      • These changes apply to tax years beginning after December 31, 2017 and to tax years beginning on or before December 31, 2017 to which NOLs arising in tax years beginning after December 31, 2017 are carried.
    • NOLs arising in tax years beginning after December 31, 2017 can be carried back five (5) years.
    • The CARES Act suspends the loss limitation re EBLs for non-corporate taxpayers so they can deduct EBLs arising in 2018, 2019 and 2020 without regard to the $250,000/$500,000 limitation.
  • Filing to Claim an NOL Carryback
    • In General
      • When an NOL is carried back to a year before the loss year, the taxpayer’s tax return has already been filed for the carryback year and the taxpayer’s taxable income has been computed without regard to the deduction.
      • When the NOL is determined, the NOL reduces or eliminates the tax liability for the carryback year.
      • To claim a refund the taxpayer may, with the applicable period of limitations:
        • File an amended return for the carryback year to claim the refund; or
        • File an application for a tentative carryback adjustment.
      • The advantage of the latter is that it is a quicker procedure than the amended return.
    • Amended Return
      • An, individual files Form 1040X, Amended U.S. Individual Income Tax Return and a corporation files Form 1120X, Amended U.S. Corporation Income Tax Return.
      • The amended return must be filed within three (3) years of the due date, including extensions for filing the return for the loss year.

Example 1.  Taxpayer T, an individual calendar year taxpayer, sustained an NOL for 2018.  The NOL can be carried back to 2013, the first year in the 5-year carryback period. The due date for filing the individual’s 2018 return was April 15, 2019. The amended return for 2013 must be filed by April 15, 2020.  Any unused NOL is carried forward.

Example 2.  X Corporation, a calendar year taxpayer, sustained an NOL for 2018.  The NOL can be carried back to 2013, the first year in the 5-year carryback period.  The due date for the loss year is March 15, 2019.  The amended return for 2013 must be filed by March 15, 2022.  Any used NOL is carried forward.

• Application for Tentative Carryback Adjustments
  • This is the alternative “quick result refund” procedure for obtaining a refund due to an NOL.
  • An individual files Form 1045, Application for Tentative Refund, and a corporation files Form 1139, Corporation Application for Tentative Refund.
  • The application must be filed on or after the date for the return for the loss year (including extensions) and within twelve (12) months after the loss year.
  • Absent a special provision, it would not be possible to timely file for a quick refund for 2018 since we are past December 31, 2019, which is twelve (12) months after the loss year.
  • However, CARES Act provides that quick refund application will be treated as timely if filed within one hundred twenty (120) days after March 27, 2020, the date of the enactment of the CARES Act.

Example 1.  Individual taxpayer T sustains an NOL for 2018.  The NOL is first carried back to 2013, the first tax year in the 5-year carryback period.  T filed her return on April 15, 2019.  T must file Form 1045 within 120 days of March 27, 2020.

Example 2.  X Corporation, (a C corporation) had an NOL for 2018. The NOL is first carried back to 2013, the first year in the 5-year carryback period.  The due date for filing X’s return is March 15, 2019.  X filed the return on February 20, 2019. The Form 1139 must be filed within 120 days after March 27, 2022.

Example 3.  Individual T sustains an NOL for 2019.  The NOL is first carried back to 2014, the first tax year in the 5-year carryback period.  T filed her return on July 15, 2020.  T must file Form 1045 after July 15, 2020 and not later than December 31, 2020.

Example 4.  X Corporation (a C corporation) had an NOL for 2019.  The NOL is first carried back to 2014, the first year in the 5-year carryback period.  The due date for filing X’s return is March 15, 2020.  X filed the return on February 20, 2020.  Form 1139 must be filed on or after February 20, 2020 but not later than December 31, 2020.

• Time IRS is Required to Act for Quick Refund Application
  • The IRS is generally required to act on a quick refund application within ninety (90) days from the later of the date the application is filed or the last day of the month in which falls the last date precluded by law, including any extension, for filing the return for the loss year.

Employee Retention Credit & Payroll Tax Deferral

• Employee Retention Credit
  • Credit
    • Eligible employers are allowed a refundable credit against, generally, the employer’s 6.2% portion of FICA payroll tax (or against the Railroad Retirement tax) for each calendar quarter in an amount equal to 50% of the qualified wages paid to each employee of the employer for such calendar quarter.
    • The credit is available for wages paid after March 12, 2020 through December 31, 2020.
  • Eligible Employer
    • An “eligible employer” is any employer which carried on a trade or business during calendar year 2020 whose operations for a calendar quarter has been fully or partially suspended during the calendar quarter as a result of a government order limiting commerce, travel, or group meetings due to the COVID-19 epidemic.
    • The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.
  • Qualified Wages
    • The amount of qualified wages with respect to any employee which may be taken into account by the employer for all calendar quarters cannot exceed $10,000. Thus, the credit is a maximum of $5,000 per employee.
    • For employers with more than 100 employees in 2019, qualified wages are wages paid by the employer with respect to which an employee is not providing services because of the business suspension or reduction in gross receipts described above.
    • For employers with 100 or fewer full-time employees in 2019 whose operations for a calendar quarter have been fully or partially suspended during the calendar quarter as a result of a government order limiting commerce, travel, or group meetings due to the COVID-19 epidemic, qualified wages are all wages paid by the employer with respect to the employer during the quarter.
    • Qualified wages do not include:
      • (1) wages taken into account for purposes of the payroll credits provided by the Families First Coronavirus Response Act for required paid sick leave or required paid family leave;
      • (2) wages taken into account for the employer income tax credit for paid family and medical leave; or
      • (3) wages in a period in which an employer is allowed for an employee a work opportunity credit.
    • Election Out
      • An employer can elect to not have the credit apply on a quarter-by-quarter basis.
    • Unavailability of Credit
      • The credit is not available to employers receiving a covered loan under the Paycheck Protection Program, discussed above.
    • Payroll Tax Deferral
      • Deferral of Payroll Taxes
        • Taxpayers (including self-employed individuals) are able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one due on December 31, 2021, and the other on December 31, 2022.
      • Taxes Eligible for Deferral
        • Taxes that can be deferred include the 6.2% employer portion of FICA taxes, and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate).
        • For self-employed individuals, the deferral applies to 50% of the SECA tax liability (including any related estimated tax liability).
      • Unavailability of Deferral
        • The relief is not available if the taxpayer has had loan forgiveness under the Paycheck Protection Program, discussed above.

Retirement Plans

• No 10% Additional Tax for Coronavirus-Related Retirement Plan Distributions
  • Background
    • The CARES Act provides that the IRC 72(t) 10% additional tax does not apply to any coronavirus-related distribution, up to $100,000.
    • A coronavirus-related distribution is any distribution made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan (defined in IRC 402(c)(8)(B)), made to a qualified individual.
    • A qualified individual is an individual:
      • (1) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC),
      • (2) whose spouse or dependent (as defined in IRC 152) is diagnosed with such virus or disease by such a test, or
      • (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
    • Plan Administration
      • The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of (3) above in determining whether any distribution is a coronavirus-related distribution.
    • Recontribution permitted
      • Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made IRC 402(c), IRC 403(a)(4), IRC 403(b)(8), IRC 408(d)(3), or IRC 457(e)(16), as the case may be.
      • If a contribution is made with respect to a coronavirus-related distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer is, to the extent of the amount of the contribution, treated as having received the coronavirus-related distribution in an eligible rollover distribution (as defined in IRC 402(c)(4)) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
      • If a contribution is made with respect to a coronavirus-related distribution from an individual retirement plan, then, to the extent of the amount of the contribution, the coronavirus-related distribution is treated as a distribution described in IRC 408(d)(3) and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
      • Distribution can be included in income over three years. In the case of any coronavirus-related distribution, unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be so included ratably over the 3-taxyear period beginning with such tax year.
      • For this purpose, rules similar to the rules of IRC 408A(d)(3)(E) apply.
    • Effective date
      • The above rules apply to distributions made on or after January 1, 2020, and before December 31, 2020.
    • Loans from Qualified Plans
      • The CARES Act provides flexibility for loans from certain retirement plans for coronavirus-related relief by:
        • Increasing loan limitation amount to lesser of $100,000 or 100% of participant’s account balance
        • Delaying payment of existing loans by 1 year
      • RMD Requirement Waived for 2020
        • The CARES Act provides that the RMD requirements do not apply for calendar year 2020.
        • The RMD requirements also do not apply to any distribution which is required to be made in calendar year 2020 by reason of: (I) a required beginning date occurring in calendar year 2020, and (II) such distribution not having been made before January 1, 2020.
        • If the 5-year rule applies, the 5-year period is determined without regard to calendar year 2020.
        • Plan sponsors have until the last day of the first plan year beginning on or after January 1, 2022 to adopt a plan amendment, except for governmental plans in which case the deadline is 2024.

Charitable Giving

• New Charitable Deduction Rules
  • The Act creates a new “above the line” deduction available to taxpayers who do not itemize deductions of up to $300 for cash contributions made to publicly supported charities for years beginning after December 31, 2019.
  • For taxpayers who itemize their deductions, the Act provides that for 2020, a taxpayer will be able to deduct up to 100% of adjusted gross income for cash contributions to charity, suspending the former limit to the deductible amount of 60% of adjusted gross income. This rule will not apply to gifts to private foundations and donor advised funds.
  • For corporate taxpayers for 2020, the limit on deductible amounts which had been 10% of taxable income is increased to 25% of taxable income and for contributions of food inventory, which had a former limit of 15%, will be deductible up to 25%.
• SBA Loans for Charitable Organizations
  • Unlike usual Small Business Administration (SBA) programs, the Act will allow nonprofits, both IRC 501(c)(3) charitable and philanthropic entities and 501(c)(19) veterans organizations, with less than 500 employees to qualify for the Payroll Protection Program loans noted above.

Aid for Students

• Background
  • Financial aid to students is for education expenses and may be in the form of, grants, scholarships, work study and loans. A student, a parent or both may take a student loan.
• Emergency Relief to Current Students
  • The CARES Act provides emergency rules for certain federal grants.
    • Higher education institutions may release Pell Grants to current students up to the maximum amount for the applicable award year while relaxing the rules to conduct need based calculations.
    • Work study grants continue despite student’s inability to fulfill work study requirements due to COVID 19 where a student already received a grant.
  • Relief on Existing Loans in Repayment
    • The CARES Act has several provisions targeting student loans guaranteed by the federal government.
    • The provisions address student loan monthly payments, accrual of interest on federal loans, and collection efforts for loan delinquencies during the COVID-19 emergency.
    • According to Lendingtree.com, there is approximately $1.64 trillion in student loan debt amongst 45 million borrowers and 11% of loans were in default in 2019.
    • The provisions in the CARES Act concern Federal student loans, loans guaranteed by the federal government.
    • Student loan holders from private lenders or those who refinanced their loans after graduation received no relief under the CARES Act.
    • However, some private lenders, upon request, are allowing a 60-day forbearance on loan payments; but full interest continues to accrue. SOFI Daily.
    • The CARES Act includes several emergency relief provisions for student borrowers:
      • Federal student loans in repayment have borrowers’ payments suspended from the effective date of the act, March 27, 2020, through September 30, 2020. Debt collection is suspended where the default was a result of COVID-19 only.
      • Federal student loans will accrue no interest during this time.
      • Borrowers may still elect to make payments and receive the benefit of zero interest.
      • No penalty to a borrower’s credit for suspended payments or reporting to credit agencies.
      • Suspension is automatic and requires no application process.
      • Servicers to send out notices by August 1, 2020, regarding new payment due date.
    • Exclusion of certain employer payments of student loans
      • IRC 127 allows an employee to exclude from income up to $5,250 per year in educational assistance provided by their employer under an educational assistance plan for courses at the associate, undergraduate and graduate level.
      • The education may be at undergraduate or graduate level and is not required to be job-related. The requirements for a qualified educational assistance plan are:
        • The employer must have a written plan.
        • The plan may not offer other benefits that can be selected instead of education.
        • Assistance cannot exceed $5,250 per calendar year for all employers of the employee combined.
        • The plan must not discriminate in favor of highly compensated employees (generally, for 2020, those receiving $130,000 or more).
      • Under what is now IRC 127(c), employers may now contribute up to $5,250 toward an employee’s student loans as tax free contributions not includable in the employee’s gross taxable income, as contained within the CARES Act section 2206.
      • Before the CARES Act, employer contributions under 127 were limited to tuition, essentially current costs of educational benefits while excluding payment of prior student debt of employees.
      • However, now, with the addition of “loan” to IRC 127, the benefit of 127 is expanded to allow employers greater flexibility to assist employees with student loan repayment.
      • However, if an employee receives student loan repayment assistance under the 127(c) exclusion, the employee loses the 221(a) benefit of the $2,500 deduction.
        • Previously, the 221(a) deduction of $2,500 was available in addition to the income tax exclusion benefit under IRC 127 for employer contributions up to $5,250 dollars.
      • BEWARE! If the employer repays an employee’s student loan interest or principle under 127(c) for employer benefits for up to $5,250, the employee cannot also claim the student loan interest deduction under 221(a) for up to $2,500.
        • Under the CARES Act, there is a denial of double benefit (denial of IRC 127(c) and 221(a) through language added to 221(e)).
        • This is because under IRC 221(a), there is an allowance for an individual taxpayer deduction on student loan interest up to $2,500 dollars.
      • An employer can pay for a student’s current tuition under the new 127(c) with the employee receiving the exclusion from taxable income for the tuition up to the maximum amount and the employee can still claim the 221(a) interest deduction for interest paid by the student on the prior student loan debt.
      • Although IRC 127(c) expands the assistance that employees may receive from an employer, it does not expand the total money that may be excluded.
        • The exclusion cap on IRC 127 remains at $5,250 dollars.
        • The employer may assist with loan repayment or provide tuition assistance or some combination thereof, up to the capped amount.
      • The CARES Act modifications to IRC 127(c) expand an employer’s ability to pay past student loan debt or tuition as excludable from income tax, depending on the employee’s needs.
        • This increased flexibility comes when even more borrowers may need relief from student loan debt.
        • This benefit comes with a loss – the loss of a deduction under 221(a) for employer-paid loan interest.
        • However, the exclusion for tuition may be used with a simultaneous deduction for student-paid loan interest without violating 221(e).

Pandemic Unemployment Assistance

• Background
  • The CARES Act creates a temporary, federally funded “Pandemic Unemployment Assistance” program providing unemployment benefits to certain individuals who otherwise would be ineligible for such benefits under state or federal law (a “covered individual”).
• Covered Individuals
  • A “covered individual” includes:
    • (1) individuals who are self-employed (for example, consultants or independent contractors), who are seeking part-time employment, or who lack sufficient work history;
    • (2) individuals who are not otherwise eligible for, or have exhausted all rights to, unemployment benefits; and
    • (3) individuals who are unemployed, partially unemployed, or unable to work because of any of the following COVID-19-related circumstances:
      • The individual has been diagnosed with COVID-19 or is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
      • A member of the individual’s household has been diagnosed with COVID-19;
      • The individual is providing care for a family or household member who has been diagnosed with COVID-19;
      • A child or other person in the household for whom they have primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of COVID-19, and such school or facility care is required for the individual to work;
      • The individual is unable to reach the place of employment because it has closed, because of a quarantine imposed as a direct result of COVID-19, or because a health care provider has advised the individual to self-quarantine due to COVID-19 concerns;
      • The individual was scheduled to begin employment and does not have a job or is unable to reach the job as a direct result of COVID-19;
      • The individual has become the breadwinner or major support for a household because the head of household has died as a direct result of COVID-19; or
      • The individual has been forced to quit a job as a direct result of COVID-19.
    • A “covered individual” does not include an individual who (i) can telework with pay, or (ii) is receiving paid sick leave or other paid leave benefits.
  • Waiver of Work-Seeking Requirement
    • Unlike many states’ unemployment laws, the Pandemic Unemployment Assistance program does not require a covered individual to be actively seeking work to receive unemployment benefits under the program.
  • Duration of Benefits
    • Benefits under the Pandemic Unemployment Assistance program are available for the duration of the covered individual’s period of unemployment, partial unemployment, or inability to work, beginning retroactively on Jan. 27, 2020 and ending on Dec. 31, 2020, up to a maximum of 39 weeks. This represents a 13-week increase of the 26-week maximum allowed under many states’ unemployment laws.
  • Amount of Benefits
    • The weekly amount of benefits available under the Pandemic Unemployment Assistance program is the sum of:
      • (1) the weekly benefit amount authorized under the unemployment compensation law of the state where the covered individual was employed (but not less than the benefit that would be provided under state law for a week of total unemployment), plus
      • (2) $600.
    • The benefit for a covered individual who is self-employed or who would otherwise not qualify for unemployment compensation under state law is the sum of:
      • (1) the benefit that would be provided under state law for a week of total unemployment, plus
      • (2) $600.
    • The Act also enhances unemployment compensation benefits for all eligible individuals – whether eligible under the expansion in the CARES Act or under applicable state law.
      • The enhanced benefits include an additional $600 per week (even if this takes the employee above their pre-unemployment earnings level).
    • Waiver of Waiting Period
      • The Pandemic Unemployment Assistance program does not require any waiting period before eligibility for benefits, unlike many states’ unemployment laws that do not provide benefits for the first week of unemployment.
      • If a state waives its standard one-week waiting period requirement, thus paying recipients as soon as they become unemployed, the federal government will fund the cost of that first week of benefits.
    • Applicability
      • Unlike the Families First Coronavirus Response Act, which only applies to private employers with fewer than 500 employees, the CARES Act applies to all employers regardless of size.
    • New Jersey Claims Process
      • New Jersey Division of Unemployment Insurance has published on the web important information and guidelines for claiming weekly benefits due to the coronavirus emergency.

To ensure the continued stability of its online application, claim applications can be accessed during scheduling windows based on the last 4 digits of the claimant’s Social Security Number.