On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides approximately $2.2 trillion of fiscal stimulus to support individuals, businesses, and the health industry in the United States in response to the economic distress caused by the Coronavirus Disease 2019 (“COVID-19”).

The CARES Act addresses several elements of the United States. Economy and was enacted with the goal of providing emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

Relief for Businesses

Paycheck Protection Program Loan (“PPP”)

The Paycheck Protection Program (“PPP”) provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits with the objective of encouraging businesses to retain employees during the COVID-19 crisis. The PPP provides federally guaranteed loans of up to 2.5 times of the borrower’s payroll costs plus the amount of any outstanding EIDL amount received between January 31, 2020 and the date of the approval of the PPP application, with a maximum of $10 million.

Small businesses with less than 500 employees that were operational as of February 15, 2020 can apply for loans under the PPP to cover the borrower’s payroll expenses. PPP proceeds can be used to cover the following costs: (i) payroll and benefit programs; (ii) rent and utility payments if the lease was effective as of February 15, 2020; and (iii) mortgage payments for obligations that were incurred before February 15, 2020. The loans have a maximum interest rate of 1% and the first payment is deferred for six months to one year. PPP loans are also forgivable if the borrower uses the funds for the permitted purposes and full-time employees are retained at their regular wages. Please see the chart below with a comparison of the PPP and the EIDL program

Federal SBA Loan

Small businesses can apply for low-interest loans through the U.S. Small Business Administration’s Economic Injury Disaster Loan (“EIDL”) Program. The SBA’s EIDL program provides small businesses with working capital loans of up to $2 million as vital economic support to help overcome their temporary loss of revenue.

Florida SBA Loan

Small business located in Florida can apply to the Florida Small Business Emergency Bridge Loan Program. This program is available for short-term, interest-free, up to one-year loans of up to $50,000, and $100,000, in limited circumstances.

Employee Retention Credit

Eligible employers may take a tax credit for retaining employees during the economy downturn. The credit is available to businesses that have had to fully or partially suspend operations as the result of a government order or have seen their gross receipts decline by more than 50 percent compared with this quarter last year. The credit will cover 50 percent of the wages paid by an employer during the shutdown, up to $10,000 per employee.

Net Interest Deduction Limitation

The CARES Act also modifies the net business interest deduction limit from 30 percent of adjusted taxable income to 50 percent for tax years beginning in 2019 or 2020. As a result, taxpayers will be able to deduct more interest expense resulting from the increase of the limit.

Modification of Net Operating Losses (“NOLs”)

Under the CARES Act, businesses may take NOLs earned in 2018, 2019, or 2020 and carryback those losses five years. Since the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”), NOLs could not be carried back but could be carried forward indefinitely. The TCJA also limited the NOL 80 percent. The CARES Act suspended the 80 percent limitation temporarily, reinstating it for tax years beginning after 2020.

As a result, businesses may use NOLs they have incurred to offset their taxable income without the 80 percent limitation and claim refunds for tax returns from prior tax years.

Social Security Payroll Tax Payments

Employers and self-employed individuals will be able to defer payments of the employer shares of Social Security pay roll taxes from the date of enactment of the legislation through December 31, 2020. The deferred taxes must be paid over a two-year period ending in December 2022.

Exception from Excise Tax for Alcohol Used to Produce Hand Sanitizer

Taxpayers subject to the excise tax on distilled spirits will be temporarily excepted for distilled spirits removed in 2020 and used in or contained hand sanitizer produced and distributed in response to COVID-19.

Relief for Individuals

Recovery Rebate for Individual Taxpayers

The CARES Act provides a $1,200 refundable tax credit for eligible individuals and $2,400 for eligible joint taxpayers. Additionally, taxpayers with children will receive $500 for each child. The credit phases out depending on income level starting at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers with no children.

Nonresident aliens and individuals who may be claimed as a dependent on another person’s tax return, estate, or trust are not eligible individuals.

The IRS will make automatic payments to individuals who previously filed their income tax returns electronically, using the direct deposit banking information provided on the tax returns. For taxpayers that have not provided the IRS with their banking information, the rebates will be issued by check.

Unemployment Insurance

The CARES Act temporarily increases the amount of and expands eligibility for unemployment benefits. In particular, expanded unemployment insurance for workers includes a $600 per week increase in benefits for up to four months as well as federal funding of unemployment insurance benefits to those not eligible for unemployment insurance such as the self-employed, independent contractors, and those with limited work history.

Charitable Contributions

An eligible individual may make a qualified charitable deduction of up to $300 against their adjusted gross income for above-the-line-deductions.

Additionally, individuals who make cash contributions to publicly supported charities may make a charitable contribution deduction of up to 60 percent of their adjusted gross income, and any excess of the 60 percent may be carried forward for each of the five succeeding years.

Student Loans

Under the CARES Act, student federal loan payments and interest accrual are suspended through September 30, 2020. In addition, certain employer payments of student loans received between March 27, 2020, and January 01, 2021, of up to $5,250 on behalf of employees are excluded from taxable income.

At Barbosa Legal, we are continuing monitoring the developments and challenges arising from COVID-19 and we are here to assist our clients in solving their issues. You can count on Barbosa Legal to keep you informed as to the latest updates arising during these challenging times.