The fast spreading COVID-19 pandemic has forced the closure of many nonessential businesses — threatening the livelihoods of numerous small businesses here in Maine as well as the people they employed. In response to the economic and health impact of this pandemic, Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

In addition to expanding access to healthcare, this legislation provides about $2 trillion in much-needed financial relief to individuals, businesses, not-for-profit organizations, and state and local governments during the coronavirus (COVID-19) pandemic. Here are some of the key financial relief provisions.

Advance Rebate Payments

In Portland, where many people work in the restaurant and hospitality industry, the COVID pandemic has been especially hard, leaving many workers without a job and steady paycheck. Recently, Maine saw over 21,000 new unemployment claims.

To help replace some of this lost income, the CARES Act provides one-time direct “rebate” payments to individuals and families. These payments are considered advances for a new federal income tax credit that’s subject to phaseout thresholds based on adjusted gross income (AGI). The following summarizes credit amounts and phaseout thresholds:

• Single filers get a $1,200 rebate that begins to phaseout for AGI earned over $75,000
• Head of household also gets a $1,200 rebate with an AGI-based phaseout of $112,500
• Those married and filing jointly receive $2,400 with an AGI-based phaseout of $150,000
• Families receive $500 for each qualifying child under 17, and are subject to the same phaseout thresholds listed above
• Credits are reduced by $5 for every $100 of AGI earned about the listed threshold

Your credit will be based on your 2019 federal return if you’ve filed already. If not, it will be based on your 2018 return. If you previously signed up to have your federal income tax refunds deposited into a bank account, you’ll have your advance credit payment deposited directly into that account.

When filing taxes for 2020, you can make adjustments and claim any underpayments. The IRS won’t take back any overpayments. The credit is also fully refundable for individuals and families with low or zero federal income tax liabilities. In fact, you need not have any taxable income to collect the credit.

Modifications of TCJA Provisions

To free up cash for some businesses and individuals, the CARES Act temporarily scales back several Tax Cuts and Jobs Act (TCJA) deduction limitations on:

• Net operating losses (NOLs)
• Business tax losses sustained by individuals
• Business interest expense
• Itemized charitable deductions by individuals and charitable deductions for corporations

Other changes to the TCJA made by the CARES Act include:

• Accelerating the recovery of credits for prior-year corporate alternative minimum tax (AMT) liability.
• Allowing individuals to claim an above-the-line deduction of up to $300 for cash contributions to charities for tax years beginning after December 31, 2019.
• Fixing a drafting error that didn’t install a 15-year depreciation period for qualified improvement property (QIP). Now QIP is eligible for first-year bonus depreciation in tax years after the TCJA took effect.

Employee Retention Credit

In an attempt to reduce the rocketing unemployment rate, the CARES Act encourages employers to retain employees through the crisis by creating a new payroll tax credit. Eligible employers can claim a 50% refundable payroll tax credit on wages (including health insurance benefits) of up to $10,000 that are paid or incurred from March 13, 2020, through December 31, 2020.

To qualify, an employer must have their:

• Operations are partially or fully suspended because of the COVID-19 pandemic, or
• Gross receipts decline by 50% or more compared to the same quarter in the prior year.

For employers who had 100 or fewer employees (on average) in 2019, all employee wages are eligible — even if the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.

So Much More

The CARES Act also includes provisions to:

• Significantly expand unemployment benefits
• Allow IRA owners and qualified retirement plan participants who are adversely affected by the COVID-19 pandemic to withdraw up to $100,000 in 2020 and then recontribute the withdrawn amount within three years with no federal income tax consequences (same as with a withdrawal and a subsequent tax-free rollover)
• Waive required minimum distributions (RMDs) from IRAs and retirement plans that would otherwise have to be taken in 2020 to avoid an expensive penalty
• Allow for a recipient employee, tax-free treatment for up to $5,250 of employer payments made on the employee’s student loans, for payments between now and year end
• Allow employers to defer their portion of payments of Social Security payroll taxes through the end of 2020 (with similar relief provided to self-employed individuals)
• Delay implementation of the current expected credit loss (CECL) standard for large public banks until the earlier of the end of the COVID-19 crisis or December 31, 2020
• Expands access to capital for businesses adversely impacted by the COVID-19 crisis

Need Help?

This pandemic has affected everyone in Maine in some way. If you are an individual or business that has experienced financial harm because of this crisis, the Maine District of the Small Business Administration and the State of Maine Department of Labor are good resources to investigate. If you need professional help navigating some of the financial and tax implications of the CARES Act, please contact us at Filler & Associates.