In October of 2021, as a result of the largest leak of documents in history, 11.9 million files from over 2.94 terabytes of data were publicly released by the International Consortium of Investigative Journalists [ICIJ].
On March 27th, 2020 the largest stimulus package in the history of the country was signed into law. To provide perspective, the 880-page bill is almost three times the price of the 2008 stimulus package, and several hundreds of billions of dollars more than the entire annual federal budget. Based on the principles of Keynesian economics, this financial push to the economy is expected to double its price-tag in its effect towards the market-economy.
Read the full bill here: https://www.congress.gov/bill/116th-congress/house-bill/748/text
Expected Provisions to be Enacted While We Await Confirmation of the Final Bill:
1) Individual Payments
For American taxpayers that have adjusted gross incomes of less than $150,000, or less than $112,500 as head of household, or less than $75,000 single, will receive a $1,200 rebate ($2,400 for couples), as well as an additional $500 rebate per child. The payments would be phased out at higher income levels and capped at $99,000 such that Americans earning six figures would not get a payment (here).
2) Additional Funding to the Small Business Administration
Over $27 billion is allocated to the SBA to administer loans to small businesses and provide further assistance under EIDL Grants and Developmental Programs. $45 billion will be diverted to the Disaster Relief fund.
$349 billion is allocated to the SBA over six months, which will serve as a guarantor for Section 7(a) nonrecourse loans for small businesses affected by COVID-19. The loans are open to companies with fewer than 500 employees and can equal up to the lesser of 2.5 times their average monthly payroll costs (or seasonal payroll if applicable), or $10,000,000. The loans are allowable for “general use” to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. The loans must be free to apply for and the interest rate will be capped at 4% (details here).
The bill gives the lenders the ability to forgive a portion of loan principal (but not interest) equal to the average number of current full-time employees per month paid less than $100,000 in 2019 (here). It may also allow firms to rehire laid-off employees and receive the same loan forgiveness (here). For a more detailed analysis see EIG Here.
Small Business Loan Take Away Summary
The SBA loan program will give borrowers a low interest loan (4% max), no fees, 6-12 months deferral of payments, and will forgive the principal of the loan used for the following purposes for an eight week period (free money allocated for employees who make less than $100,000):
Furthermore, the loan also requires no personal or collateral guarantee.
3) Unemployment Insurance Extended by a Month and Provides an Extra $600 a Week
The law provides weekly “Federal Pandemic Unemployment Compensation” where workers will be paid an additional $600 per week on top of what they would normally receive by the state for up to four months (until July 31). Once that additional federal assistance is exhausted, workers will continue to receive their normal benefit amount, administered by their state. The relief package will also allow workers to receive benefits for an additional 13 weeks, providing up to 39 weeks (or nearly 10 months) of financial assistance in total. (here).
Again, the extra $600 is federally funded, and in addition to state unemployment payments, will thus not reduce the state’s available resources to combat unemployment. Moreover, these plans will be administered through the state, so applicants don’t have to apply to two separate programs (here).
Of note to employers and employees is that low-wage workers may end up getting more money through unemployment than they previously were earning at the job. This is because $600 a week is what one would earn working 40 hours a week at $15 per hour (pretax), well above minimum wage. Again, that’s in addition to normal unemployment insurance.
Also, state applications must be available by two of these three methods: in person, online, or by phone (here).
4) Short-Time Compensation Program (“STC”)
The Bill provides $100,000,000 to sponsor STC programs; however, these programs must already be enacted by the state. Short-Time Compensation (STC), also known as work sharing or shared-work program, is an alternative to layoffs for employers experiencing a reduction in available work. STC preserves employees’ jobs and employers’ trained workforces during times of lowered economic activity. STC allows employers to reduce hours of work for employees rather than laying off some employees while others continue to work full time. Those employees experiencing a reduction in hours are allowed to collect a percentage of their unemployment compensation (UC) benefits to replace a portion of their lost wages (here).
5) 180 Day Federal Mortgage Forbearance and 30-90 Day Multifamily Forbearance
Any borrower with a Federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency for up to 180 days (here).
Moreover, a multifamily borrower with a Federally backed multifamily mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request a 30-day forbearance. They may furthermore request a 30-day extension twice. During this time, however, they may not evict any tenants or charge late fees for rent (here).
6) Tax-Free Borrowing from Your IRA or Other Approved Retirement Plan
Individuals can borrow up to $100,000 in a given year from their retirement plans and avoid tax repercussions. Doing so is more stringent than other requirements as individuals must be “diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention” (here). Moreover, an extra year is given to repay the loan.
7) Charitable Deduction Changes
For those who won’t itemize their taxes, it appears a special onetime $300 charitable deduction will be allowed for your 2019 tax returns if paid in cash (here). More salient to our clients are the changes to charitable contribution deductions and carry forward.
A) Charitable Contribution Deductions
Taxpayers can take deductions on charitable contributions up to their whole adjusted tax base, minus the new loss carryback and the old loss carrybacks, except for those already allowed and deducted under section 170(b)(1).
In general, there is an overall limitation of 50% of an individual taxpayer’s contribution base that applies to total charitable contribution deductions claimed for the tax year per IRC Section 170(b)(1)(A). A taxpayer’s “contribution base” is the taxpayer’s adjusted gross income (“AGI”), computed without regard to the charitable deduction and any net operating loss carrybacks per IRC Section 170(b)(1)(H). The CARES Act temporarily suspends this 50% limitation on charitable contribution deductions for qualified charitable contributions made after December 31, 2019 and before January 1, 2021.
In other words, taxpayers can deduct up to 100% of their contribution base for charitable contributions made in 2020.
B) Carry Forward
Taxpayers can carry forward charitable contribution deductions that exceed their aggregate contribution base.
In general, if a taxpayer makes charitable contributions in excess of applicable percentage limitations, the excess amounts can be carried forward for up to five years, subject to the percentage limitations of each successive tax year per IRC Section 170(d)(1). Just as with disaster relief act in 2017 for qualified disaster areas, the California wildfire disaster areas, and certain hurricane disaster areas, which temporarily suspended the 50% percentage limitation on charitable contribution deductions, the CARES Act permits taxpayers to carry forward charitable contribution deductions that exceed their aggregate contribution base in 2020 for up to five years, subject to the percentage limitation of those subsequent years.
8) Provides Limitations and Expansions to the Families First Coronavirus Response Act (“FFCRA”)
The FFCRA provides emergency leave to employees that are sick or need to take care of family members that are unable to take care of themselves (i.e. children). The CARES Act modifies that bill and provides a $511 daily, or $5,110 aggregate, limit for individuals personally sick, and $200, or $2,000 aggregate, limit to those needing to take care of others (here and here). Note, this only applies to employers who have fewer than 500 employees, and only covers the first 50 employees in that company (here).
The CARES Act further expands the FFCRA to apply employees who were laid off after March 1, 2020 but are now rehired in lieu of government support. In other words, you can rehire laid-off employees and use the FFCRA to have them be paid while on medical leave.
Note – several technical corrections to the FFCRA are being made; thus its provisions may be reanalyzed in the days to come (here).
9) An Employment Tax Credit for Closed Businesses that are Still Paying Employees
If COVID-19 has caused a business to close, the business is eligible for an employment tax credit equal to 50% of qualified wages, for up to $10,000 per quarter, for retained employees. This only applies so long as the business averaged less than 100 employees at a time in a calendar year (here).
10) Tax Incentives to Produce Hand Sanitizer
26 USC 5214 is amended to remove the alcohol tax on alcohol used to produce hand sanitizer.
11) Net Operating Loss Deduction Changes
The CARES Act provides major changes to Net Operating Losses (“NOLs”). First, NOLs arising in 2018, 2019, and 2020 have a five-year carryback period and an unlimited carryforward period. Second, the provision limiting an NOL deduction to 80% of taxable income does not apply to NOLs arising in 2018, 2019, or 2020.26. USC 172 is amended to allow an increase in tax deductions on aggregate operating losses for prior years and carrybacks (see here and here). There are other changes concerning NOLs, such as technical corrections to the timing of carryback periods under TCJA, and NOL rules for particular industries, but are not as salient as the above.
12) A Study is Commissioned to Address Medical Needs and Increase Oversight
The Bill employs the National Academies of Sciences, Engineering, and Medicine to perform a national supply chain study to decrease the reliance on foreign imports of drugs and medical supplies. The report will be, in part, privileged for national security reasons. $4.3 billion will be allocated to the Centers for Disease Control and Prevention, to support federal, state and local public health agencies to prevent, prepare for, and respond to the coronavirus
Additionally, several parts of the US Code are amended to reflect that respirators are medically necessary; and that the federal government should stockpile “drugs, vaccines and other biological products.” Moreover, medical and related pharmaceutical companies must now report whether there are any interruptions in the supply chain to assure the USA is not taken by surprise by a drug shortage (here).
Furthermore, a discretionary fund of $1,320,000,000 will be created to promote telemedicine and rural health care outreach (here). Relatedly, $125,500,000 will be directed towards the Healthy Start Program to assist with rural areas that have a high infant-mortality rate (here).
13) Mandatory Coverage of COVID-19 Test and a $300 Fine for Failure to Advertise COVID-19 Test Price
The bill mandates that most insurance providers cover COVID-19 testing and disallows profiteering in light of the disaster. Relatedly, each provider of a COVID-19 diagnostic test must advertise its price online or face a $300 fine, per each day of non-compliance (here).
14) Medical Liability is Waived
In an effort to ease the minds of the currently overwhelmed medical industry, “a health care professional shall not be liable under Federal or State law for any harm caused by an act or omission of the professional in the provision of health care services during the public health emergency with respect to COVID–19.” This of course does not include willful indifference or fraud (here).
Moreover, various “face to face” doctor-patient requirements are eased during this emergency time, such as for dialysis and hospice patients (here).
15) Educational Federal Funding Changes
The bill provides $30 Billion to universities to allow greater leeway on how to spend federal funds. Students who signed up for work-study can still be paid even though under quarantine. Also, should students not have been able to complete their semester, that does not affect their ability to apply for subsidized loans nor will their academic standing be adversely affected. Likewise, teachers who could not teach due to COVID-19 can still be considered to have “constantly” taught and apply for loan forgiveness (here).
*Probably the most salient change is that payments due on all loans held by the Department of Education are suspended until September 30, 2020. There will furthermore be no accrual of interest (here).
16) Health Savings Accounts Allow Feminine Hygiene Products as Deductibles
A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (“HDHP”). The funds contributed to an account are not subject to federal income tax at the time of deposit. This bill expressly dictates that “menstrual care products” such as a tampon, pad, liner, cup, sponge, or similar product used by individuals with respect to menstruation or other genital-tract secretions shall now be considered a “qualified medical expense” for these accounts (here).
17) Creation of a $500 Billion Fund (The CARES Bail Out)
In one of its more controversial measures, the CARES Act has a $500 Billion dollar fund within its discretion to use for provide liquidity to eligible businesses, states, and municipalities related to losses incurred as a result of coronavirus (here).
Note that this provision is outside the SBA program, which makes sense as it is directed towards medium sized business (i.e. 500-1,000 employees). It is unknown in what form these funds will be distributed or if businesses can even apply for them. Limits on funding include companies where any employee’s total compensation will exceed $425,000 this year and $3,000,000 in 2019 (here).
One of the greatest holdups for bipartisan support for the bill, Section 4019, disallows any of these funds being eligible for a transaction where the President, Vice President, a Member of Congress, or their spouse, child, son-in-law, or daughter-in-law owns a 20% share in the business (here).
Moreover, a five member Congressional Oversight Commission is established to review how these funds are spent (here), and a report must be filed with Congress 72 hours after the funds are distributed (here).
18) Creation of Special Inspector General for Pandemic Recovery
There shall be a Special Inspector General for Pandemic Recovery nominated by the President to conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury (here).
19) Increased State Funding
The bill includes $150 Billion for state and local governments that are cash-strapped due to their response to combat coronavirus (here), where no one state shall receive less than $1.25 billion (here). $3 billion has been set aside for District of Columbia, Puerto Rico, Virgin Islands, Guam, Northern Mariana Islands and American Samoa, and $8 billion for tribal governments. California itself is expected to receive $15.3 Billion (here). The Inspector General will assure that the funds are used for various areas of specialty, such as expansion of community mental health services, demonstration programs, outreach programs, and advocacy for sexual health practices (here).
45% of a state’s funds are set aside for local governments, with populations that exceed 500,000, with certified requests to the U.S. Secretary of Treasury. Certification requires a signature by the chief executive of the local government that the uses are consistent with certain requirements. Funds can be used for costs that:
$1.4 billion will also be deployed to the National Guard. This level of funding will sustain up to 20,000 members of the National Guard, under the direction of the governors of each state, for the next six months in order to support state and local response efforts.
20) Changes to US Drug Policy
In order to increase the quantity of drugs, creation and marketing of non-prescription drugs is allowed with less federal oversight so long as the drug only involves a “minor change” of an approved drug (here). In other words, copy-cat pharmaceuticals can increase output of Category I drugs with less oversight. Several other changes have been made for Category II & III drugs, but are well beyond the scope of this analysis (here).
Additionally, significant changes were made to regulations of over-the-counter sunscreens in the Treatment of Sunscreen Innovation Act, such as now having 180 days to obtain federal approval. Individuals must have the product reviewed for safety, but may keep the results confidential (here).
21) Medical Workforce Funding
There are slight amendments to how the federal government will fund new doctors in training; however, the changes are either term clarifications or slight inflation adjustments. For example, the requirements to become an advanced nurse were slightly modified to require a “graduate” degree opposed to a “masters” degree (here).