WASHINGTON, DC – MARCH 25: U.S. Senate Majority Leader Mitch McConnell (R-KY) gives a thumbs up sign … [+]
It’s been a long week on the Hill, but the Senate has finally reached an agreement on a bill intended to provide direct economic relief in response to the COVID-19 pandemic. The measure passed late Wednesday by a vote of 96-0: Senators Romney (R-UT), Thune (R-SD), Paul (R-KY), and Lee (R-AZ) did not vote.
COVID-19 is the official name for the infectious disease caused by the most recently discovered coronavirus. According to Johns Hopkins, as of March 25, 2020, there are 468,523 confirmed cases of COVID-19 in 173 territories and countries. The United States has 66,132 confirmed cases with reported cases in every state.
As a result of the virus, the Senate passed the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act.” It’s bigger than the original Senate proposal but smaller than the subsequent House proposal. Here are some of the highlights:
Small Business Interruption Loans. The bill would expand the eligibility for small businesses (those under 500 employees) to receive a loan of up to $10 million under the Small Business Act. Loans can be used for payroll as well as paid sick, medical, or family leave, costs related to the continuation of group health care benefits, mortgage payments and rent, utilities, and other debts. Loans could also be extended to sole proprietors, independent contractors and self-employed persons. No collateral would be required, nor any personal guarantee. Loans are eligible for forgiveness if they meet specific criteria.
Unemployment Benefits For Workers. The bill provides unemployment benefits for workers who are out of work; a temporary Pandemic Unemployment Assistance program would provide benefits for those not traditionally eligible for unemployment benefits, including self-employed workers and independent contractors.
Stimulus Checks. Checks will be $1,200 per adult – or $2,400 for married couples filing jointly – and an additional $500 per child. The amount of the checks would start to phaseout for those earning more than $75,000 ($150,000 for joint returns and $112,500 for heads of household). Phaseouts apply: for every $100 of income above those thresholds, your check will drop by $5. So, if you are a single filer earning $75,100, your check will be $1,155 ($1,200-$5). If you are a single filer earning $85,000, your check will be $700 ($1,200-$500). If you do the quick math on that, it means that you’ll phaseout completely (meaning that you’ll get nothing) once you hit $99,000 as a single filer, $198,000 as a married couple filing jointly, or $146,500 for heads of household. You can read more here.
Special Rules For Retirement Accounts. The bill would allow for tax-favored “coronavirus-related” distributions from certain retirement plans of up to $100,000 (the 10% early withdrawal penalty would not apply). Also, income attributable to those distributions would be subject to tax over three years (as opposed to one). Qualifying taxpayers would also be allowed to repay their retirement plans to make up for money withdrawn to pay coronavirus-related expenses (including loans and distributions).
Required Minimum Distributions (RMDs). The proposal would waive RMDs for 2020.
Charitable Contributions Move Above The Line. The bill would allow for charitable contributions up to $300 to be treated as above-the-line deductions. That means that you would not have to itemize to claim those deductions – something that many taxpayers have grappled with because of the increased standard deduction under the Tax Cuts and Jobs Act (TCJA).
Charitable Contribution Limits. The bill would temporarily suspend limits on cash donations for individuals and would modify limits for charitable contributions from corporations. For individuals, the 50% of adjusted gross income limitation would be suspended for 2020. For corporations, the 10% limitation would be increased to 25% of taxable income. It would also increase the limitation on deductions for contributions of food inventory from 15% to 25%.
Payroll Tax Credit For Employers. Employers who hold onto employees during the pandemic would be eligible for a refundable payroll tax credit. The 50% credit would offset the employer’s share of Social Security taxes up to $10,000 of qualified wages per employee. For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to the COVID-19. For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit.
Payroll Tax Payment Delays. The bill would extend the time to submit payroll taxes. The extension for payroll tax would apply to the employer portion of self-employment taxes, too. The provision requires that the tax be paid over the next two years, with half due by December 31, 2021, and the remainder due by December 31, 2022.
Corporate Tax Payment Delays. Corporations would get extra time to pay payroll taxes. The extension would apply to the employer portion of self-employment taxes, too.
Net Operating Losses (NOLs). Taxpayers and tax professionals weren’t big fans of the TCJA provision limiting net operating losses. Those provisions would be modified for individuals and businesses. Notably, an NOL arising in a tax year beginning in 2018, 2019, or 2020 could be carried back five years.
Increased Interest Expenses For Businesses. The provision temporarily increases the amount of interest expense businesses can deduct by increasing the 30% limitation to 50% of taxable income for 2019 and 2020.
COVID-19 Testing and Treatment. With costs for testing and treatment still a concern, the bill would require group health plans and health insurance issuers offering group or individual health insurance to cover preventive services and provide no-cost testing.
Funding for Nutrition Assistance Programs. The bill would provide funds for food assistance programs, including those for seniors, and would reauthorize the Healthy Start Program.
Work-Study. The bill would allow some payments to be made to students with work-study arrangements if those students weren’t able to finish their work during the year because of the virus (including virus-related closings).
Student Loans. The bill would increase flexibility for student loans, including allowing colleges and universities to award emergency financial aid grants without regard to the usual need calculation. The bill also allows the Department of Education to exclude some loans for students who were unable to remain enrolled in school as a result of a qualifying emergency (exceptions apply). Waivers also apply to Pell Grant repayments under the same circumstances.
Suspension Of Student Loans. The bill suspends payments for student loans under the Federal Family Education Loan and Direct Loan programs – without interest – through September 30, 2020. Additionally, collection efforts for those loans will stop during that time, including garnishments and tax refund offsets.
Health Savings Accounts (HSAs) for Telehealth Services. This bill would allow a high-deductible health plan (HDHP) with an HSA to cover telehealth services before a patient reaches the deductible.
Over-the-Counter Medical Products Without Prescription. The bill would allow patients to use funds in HSAs and Flexible Spending Accounts (FSAs) for the purchase of over-the-counter medical products, including those needed in quarantine and social distancing, without a prescription from a physician.
Menstrual Care Product As Qualified Medical Expenses. It’s back! Conspicuously absent from the House bill, the compromise bill would consider amounts paid for menstrual care products as paid for medical care. That would include “a tampon, pad, liner, cup, sponge, or similar product used by individuals with respect to menstruation or other genital-tract secretions.” The bill would extend the qualifying medical expenses treatment for menstrual products to your basic healthcare alphabet soup: MSAs, HSAs, HRAs, and the like.
More Funding For Hospitals. The bill includes more money for hospitals and other medical facilities.
Corrections & Modifications. The bill also offers revisions and modifications to existing paid leave bills, including the Family and Medical Leave Act and the Families First Coronavirus Response Act.
Bailouts. The bill would offer loans and other relief to businesses, including the airline industry; the bill does not extend similar assistance to the cruise industry. Limits apply, including restrictions on paying certain highly-compensated employees. And yes, that provision you’ve heard about in the press? It’s in the bill. It would prevent some folks – namely, the President, the Vice President, the head of an Executive department, or a Member of Congress, and their families – from benefiting from the bailouts. Also, there would be an oversight committee to monitor the loans. One more thing: the requirement to offset carbon emissions in exchange for relief has been eliminated.
Aviation Excise Taxes. The bill would suspend federal aviation excise taxes through the end of the year. You may not write a separate check for those taxes, but you do pay (check your tickets).
Housing. This bill would temporarily ban landlords from filing evictions on most renters (this would not extend to vacant or abandoned properties). Homeowners would be afforded a ban on some foreclosures and have additional options for mortgage forbearance for federally backed mortgage loans.
And everyone’s favorite new tax provision: Temporary exception from excise tax for alcohol used to produce hand sanitizer. Our distillers may save us yet! In response, the bill waives the federal excise tax on any distilled spirits used for or contained in hand sanitizer produced and distributed consistent with guidance issued by the Food and Drug Administration (FDA).
The bill was held up temporarily over language that some Senators said would allow workers to be paid more on unemployment than they would while employed. In response, an amendment – the Sasse (R-NE) amendment – was introduced late Wednesday night to limit unemployment payments. The amendment needed 60 votes to pass: it failed by a vote of 48-48.
Keep in mind that the House has not yet voted on the bill. House Speaker Nancy Pelosi (D-CA) had initially hoped to proceed by unanimous consent so that House members would not have to return to Washington. However, it’s more likely that there will be a voice vote by proxy; if that can’t be pushed through procedurally, House members will need a roll call vote. In that event, they will have to return to Washington.
I will post an official copy of the bill as soon as it’s available on the Senate website – but you’ll want to settle in – it’s over 899 pages long.
This bill is in addition to H.R. 6201, Families First Coronavirus Response Act, which cleared the House last week and passed in the Senate this week. It guarantees free testing or health care coverage for coronavirus testing, and provides paid sick leave for some workers and offers additional funding for seniors, food assistance, and unemployment benefits. You can read more about the highlights of the bill in our prior coverage here. The President signed the bill into law on Wednesday, March 18, 2020.
It’s also in addition to the $8.3 billion emergency health package, which was passed earlier this month. This most recent bill focuses explicitly on economic aid for workers.
Things are happening at a rapid-fire pace these days. As tax updates become available, we’ll keep you updated. Keep checking back for details.