What’s in the Senate Bill-Not Law as of 3/26/2020

The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) had overwhelming support after almost a week of negotiations. Lawmakers announced a deal in the morning of March 25 and it was passed by the Senate later in the day. The bill now heads to the House, where it may encounter problems after some progressive Democrats criticized it. House Majority Leader Steny H. Hoyer, D-Md., said in a statement that he expects to hold a voice vote on the issue that will allow most members to stay in their districts.

Listed here are some of the things in the Senate Bill:

Section 1102 and 1106-Paycheck Protection: Forgiveness For Small Business Loans for Keeping Employees-The bill creates a “paycheck protection program” for small employers, self-employed individuals, and “gig economy” workers, with $350 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The “Paycheck Protection Program” would provide 8 weeks of cash-flow assistance through 100 percent federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven, which would help workers to remain employed and affected small businesses and our economy to recover quickly from this crisis. This proposal would be retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls. Interest rate is not to be greater than 4%.

In general, the maximum amount of the loan is the lessor of:

  • Multiplying the average monthly payroll cost incurred during the 1-year period before the date of the loan by 2.5, or $10,000,000. Example-If you paid $1,200,000 in total payroll costs for the prior year, then your average would be $100,000. Multiply this monthly average by 2.5 and your total loan amount would be $250,000.

The bill provides that the borrower shall be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan for payroll support (including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave) employee salaries, mortgage payments, rent, utilities and any other debt obligation that were incurred before February 15, 2020. Payroll costs do not include payroll where a payroll tax credit was received due to the qualified sick leave or family leave which was provided under Families First Coronavirus Response Act. Eligible payroll costs also do not include compensation above $100,000 in wages.

The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Also, the bill allows forgiveness for additional wages paid to tipped workers.

Section 2113. Enhanced Benefits under the Unemployment Insurance Act-This section provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.

Section 2201 and 2020 recovery rebates for individuals-All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.

For most Americans, no action on their part will be required in order to receive a rebate check as IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return. This includes many low-income individuals who file a tax return in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.

Section 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts-The provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.

Section 2301. Employee Retention Credit-An employee retention tax credit is one of the few new additions to the legislation. The credit would be 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 is aimed at encouraging businesses to keep employees on their payrolls and would fully cover 50 percent of the wages paid by an employer during the shutdown, up to $10,000 per employee.

Example: You have ten employees who each make $2000 a month. To keep the example simple, suppose that healthcare benefits run $500 a month per employee. In total, then, each employee costs $2500 a month and over the next four months, the employer would spend $10,000 on each employee.

The Section 2301 “employee retention credit” gives you, the employer, a $5,000 tax credit. That’s per employee. With ten employees, then, you $50,000 in tax credits. The tax credit is what’s called a “refundable tax credit.” That means you get the credit regardless of whether you’ve pay taxes.

Example: Your business generates no taxable income due to the COVID-19 crisis. As a result, you pay no income taxes. You still get a $50,000 “tax refund.”

Section 2303-Modifications for net operating losses-The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

Section 2307. Technical amendment regarding qualified improvement property-This provision enables businesses, especially in the hospitality industry, to write off immediately costs associated with

Section 2306. Modification of limitation on business interest-The provision temporarily increases the amount of interest expense businesses can deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.

Other Items:

The bill would also permit both itemizers and non-itemizers to deduct up to $300 of cash contributions to charity in 2020, according to a section-by-section summary of the bill. The objective is to encourage greater charitable giving during the pandemic.

The bill adds a provision that waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief. A coronavirus-related distribution is a one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.