At roughly $2 trillion, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the largest economic emergency relief package this country has ever seen. And there are currently talks about a CARES II relief package in the works in Washington, D.C.
Regardless of whether or not we get another economic relief bill signed into law, the CARES Act still has tremendous implications on the individual and business taxpayer. This blog post will go over a few of those tax-related provisions.
A CARES Act Overview
The CARES Act was drafted to help as many people as possible. However, the three biggest groups affected by the CARES Act include:
- Small businesses
- Large businesses
- Individuals
Provisions in the CARES Act aimed mainly at small businesses provide forgivable loans, emergency grants and existing loan relief.
Many of the large businesses affected by the CARES Act are primarily in the airline industry.
Individuals will receive benefits primarily in the form of extra unemployment benefits and up to a $1,200 economic relief check.
The Tax Consequences of the CARES Act
For individuals, the biggest tax impact is the $1,200 Economic Impact Payments. These payments are not considered taxable income by the IRS. They will also not affect income for determining eligibility for federal government aid programs.
Individuals will get other positive tax benefits including:
- Eligible taxpayers who make withdrawals from their qualified retirement plans will not have to treat those withdrawals as income if they repay that money within three years.
- In 2020, individuals will not have to take minimum distributions from their IRA, 403(b), or employer defined contribution plan.
- The charitable contribution tax limit of 60% of adjusted gross income is temporarily raised to 100% of adjusted gross income.
- The excess business loss limits for non-corporate taxpayers established by the Tax Cuts and Jobs Act will not be in effect for 2018, 2019 and 2020 tax years.
- If an employer pays an employee’s education loans, up to up to $5,250 will not be taxable to the employee.
Many businesses will also receive a host of tax benefits from the CARES Act. Some of these include:
- Small businesses can get a refundable payroll tax credit for up to 50% (up to $10,000) of qualified wages, but only if they do not take advantage of the CARES Act SBA forgivable loans.
- Certain employer payroll taxes due starting March 27, 2020, but before January 1, 2021, will have a delayed collection period.
- Net Operating Losses generated in 2018, 2019 and 2020 tax years can be carried back up to five years.
- The 10% income limit on charitable contributions for corporations will be lifted to 25%.
- Certain businesses can now take business interest deductions that amount to 50% of adjusted taxable income. Before the CARES Act, this limit was just 30%
In Summary
The above-listed tax benefits and consequences just scratch the surface of some of the tax changes brought about by the CARES Act. To learn more about how you, your family or your business can be affected, consult with your tax professional.