CARES Act | Taxation Considerations

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[UPDATED April 2, 2020] On March 27, 2020 the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). At nearly 900 pages, the CARES Act is too broad to summarize all of the potentially pertinent provisions for every business and individual, and we expect further guidance from the Federal government on these programs in the near future. Therefore, the following is not an exhaustive summary and will be updated as we learn more. To review the full text of the portions of the CARES Act summarized below, or the many other provisions, please see the full text of the bill as signed into law.  

The following is a summary of tax provisions outlined in the CARES Act: 

Relief Checks Of $1,200 Per Adult And $500 Per Child

The CARES Act authorizes economic impact payments based on 2019 tax returns of $1,200 per adult and $500 per child for individual workers making less than $75,000 per year. The amount paid to joint-filers will depend on the size of the household and income level. For example, filers who are married with no children will receive $2,400 if their combined income is less than $150,000 per year. For those who make more than the annual income threshold, advanced refunds will be phased out at a rate of 5% and individual filers making more than $99,000 will not receive an advanced refund. These advanced refunds are treated like other refundable tax credits and will not be taxed. Current guidance indicates that checks will be in the mail in the next three weeks.  More information on these payments is available from the Internal Revenue Service.

Employee Retention Credit

One of the purposes of the CARES Act is to encourage employers to keep their employees on their payroll, despite economic hardship. The Employee Retention Credit is a new fully refundable tax credit for eligible employers equal to 50 percent of “qualified wages” up to $5,000 for wages paid between March 12, 2020 and January 1, 2021. Eligible Employers are: 1) employers whose business is fully or partially suspended by government order due to COVID-19 during the calendar quarter; and, 2) employers whose gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter. Qualified wages may include a portion of the cost of employer provided health benefits. For more information on this credit, see the IRS’s FAQ here.

Our Attorneys are working to stay abreast of this CARES Act tax credit, the interplay with other new tax credit and reimbursement programs such as those under the Family First Coronavirus Response Act, as well as other tax issues arising out of the Federal government’s efforts to combat the impact other COVID-19 epidemic, and are ready to answer your questions.