How the Federal Coronavirus Aid, Relief and Economic Security Act (CARE Act) Can Help Your Business
Updated: Apr 5, 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law by President Trump and provides benefits to businesses, individuals and local governments. The relief measures include direct grants, loans and tax changes. Businesses requiring capital or in the process of laying off workers may benefit from creative provisions of the CARES Act to maintain employment during enforced social distancing requirements and other measures that have severely damaged economic activity throughout the United States.
Direct Grants to Taxpayers
Many individuals earning less than $75,000 will receive a one-time cash payment of $1,200. Married couples would each receive a check of $2,400 and families would receive an additional $500 per qualifying child. The single individual payment phases out for taxpayers with adjusted gross incomes above $75,000 but below $99,000.
For married couples with adjusted gross income above $150,000, the $2,400 is subject to a phase-out until adjusted gross income reaches $198,000. Generally taxpayers must have filed an income tax return in either 2018 or 2019 to receive the direct payment, but taxpayers receiving social security who do not file a return are still eligible to receive their payment. Payment timing is not certain yet, but expected shortly. The payment will not be taxable income to the recipients.
If you have not filed a 2018 or 2019 return, there is still time to file to get the rebate. Even taxpayers with zero taxable income are eligible for the relief, but need a filed tax return on record to receive the payment unless they receive social security payments. Payments will be sent to the bank on record with the tax return refund or payment recorded on the return.
Workers who are laid off will generally be eligible for unemployment benefits under their specific state's rules for amounts and duration of the payments. The CARES Act provides additional relief to unemployed workers in the form of payments in addition to state unemployment benefits. This relief is in the form of additional $600 payment per week from the federal government on top of the weekly state unemployment benefit.
In addition, the CARES Act will add 13 weeks of extended state unemployment benefits. Those who have new claims or existing claims set to expire will benefit from this provision. Total unemployment benefits are now for 39 weeks.
Additional help is also available to self-employed business owners who have lost revenue because of the coronavirus. Unemployment benefits are taxable income to the recipient and the expanded benefits are also taxable.
Employer Payroll Related Tax Credits
Employers may claim a fifty percent tax credit on the wages paid to employees from March 13 to December 31, 2020. The maximum amount of the credit is $5,000 based on a limit of $10,000 wages. To qualify, the business must be suspended because of government action related to the coronavirus or the business must experience a decline of 50% or more of revenue for the calendar quarter compared to the prior year comparable quarter.
The CARES Act is separate from the Families First Coronavirus Response Act (the "FFCRA"). The FFCRA created tax credits related to the payroll taxes paid on the employer side of payroll taxes to offset sick and paid family leave related to the coronavirus.
If an employee must take time off due to coronavirus, that employee is eligible for up to 80 hours of paid sick leave and paid child care leave when the employee's child's school is closed or child care is unavailable. A refundable payroll tax credit is available dollar for dollar for the cost of the leave for the employee and is immediately available and provides full reimbursement to the employer. An employer may offset any payroll due and not paid yet, or request a refund of prior payroll payments made. Small employers may be exempt from these requirements to provide leave to care for children.
This program has certain restrictions as modified by the CARES Act, and companies taking a loan under the Paycheck Protection Program are not eligible for this tax credit. The total credit amount per employee is capped and subject to daily per diem limitations. The daily limit is $200 per employee to care for someone else and the aggregate amount per employee for all quarters that the employee qualifies for relief is $10,000. The per diem rate is $511 if the employee takes leave for purposes of self quarantine. Taxes include both social security, medicare and Medicaid, and federal income tax withholding.
The Paycheck Protection Program provides small businesses (having less than 500 employees) with loans up to $10 million based on a formula tied to payroll costs. These loans may be used to cover expenses from February 15 to June 30 and cover employees earning up to $100,000 per year. If the loan is used for payroll, rent, utilities or to pay a mortgage, the loan may be forgiven. Restrictions apply and the benefits of the loan forgiveness may decrease if employees are reduced or wages reduced relative to the prior year or current year reduction in compensation.
Importantly, loan amounts that qualify for forgiveness and are forgiven under the CARES Act are not taxable income to the taxpayer. This is an important exception because cancelled debt is generally taxable unless a specific exception applies. Congress has clearly provided this exception so businesses can plan accordingly.
Contact Steiger Tax Law to See How Your Company May Benefit
If you are in financial distress caused by the coronavirus and have questions about the benefits of the CARES Act, contact attorney Andrew Steiger at Steiger Tax Law to find out how he can help you or your business. Contact him at (248) 259-6367 or email him at Andrew.Steiger@SteigerTaxLaw.com for a free consultation.