Congress created the Paycheck Protection Program (PPP), to provide liquidity to small businesses dealing with the effects of the economic shutdown.  It was clear from the language in the CARES Act that loans used for covered expenses would not be included in a business’ gross income. However, the Bill was silent on the deductibility of these covered expenses. The IRS recently released guidance taking the position that allowing businesses to deduct expenses paid with tax exempt income (the PPP loan) would provide a “double tax benefit.” Now, after many small businesses have taken loan money in order to continue paying their employees, make rent, or cover utility costs, they face the possibility that they will not be able to deduct these expenses if their PPP loan is ultimately forgiven.

Lawmakers from both sides of the aisle are critical of this position and are proposing legislation that would override the IRS on this issue. Senators John Cornyn, R-Texas, Charles Grassley, R-Iowa, Ron Wyden, D-Ore., Marco Rubio, R-Fla., and Tom Carper, D-Del. proposed the Small Business Expense Protection Act, an amendment to the CARES Act which would allow covered expenses to be deductible.

A separate piece of legislation enacted by The House of Representatives, called the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, also addresses the deductibility issue. In addition to correcting the deductibility issue, the HEROES Act would allow employers receiving loan forgiveness under the PPP to take advantage of the CARES Act’s payroll tax deferral provisions, which was prohibited in the CARES Act.

So where does this leave small business owners who are wondering how to account for these PPP financed expenses? Unless Congress passes or negotiates a fix, they will have to assume that they will not get both loan forgiveness and the ability to deduct the expenses paid for with loan proceeds. This could ultimately mean companies may need to make larger than anticipated estimated tax payments by July 15th. Hopefully Congress will act swiftly to settle this issue so that business owners can turn their attention to safely reopening as soon as they get the green light to do so.

In order to provide the best advice to our clients, we pay close attention to updates and guidance on the various CARES Act provisions, including the PPP. As soon as we know more, we will release a follow-up article with the latest information and impact to small business owners.


With much of the country in self-isolation, perhaps you’ve got time to read the entire H.R. 748 Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. If you’d prefer, here is a summary of many of the key provisions we expect to be discussing with you in person (virtually), depending on which ones apply to you. Questions? Please be in touch!

In General

  • Direct payments/recovery rebates: Most Americans can expect to receive rebates from Uncle Sam. Depending on your household income, expect up to $1,200 per adult and $500 per dependent child. To calculate your payment, the Federal government will look at your 2019 Adjusted Gross Income (AGI) if it’s available, or your 2018 AGI if it’s not. However, you’ll receive an extra 2020 tax credit if your 2020 AGI ends up lower than the figure used to calculate your rebate. This Nerd’s Eye View illustration offers a great overview:

  • Retirement account distributions for coronavirus-related needs: You can tap into your retirement account ahead of time in 2020 for a coronavirus-related distribution of up to $100,000, without incurring the usual 10% penalty or mandatory 20% Federal withholding. You’ll still owe income tax on the distributions, but you can prorate the payment across 3 years. You also can repay distributions to your account within 3 years to avoid paying income taxes, or to claim a refund on taxes paid.
  • Various healthcare-related incentives: For example, certain over-the-counter medical expenses previously disallowed under some healthcare plans now qualify for coverage. Also, Medicare restrictions have been relaxed for covering tele-health and other services (such as COVID-19 vaccinations, once they’re available). Other details apply.

For Retirees (and Retirement Account Beneficiaries)

  • RMD relief: Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you’ve not yet taken your 2020 RMD, don’t! If you have, please be in touch with us to explore potential remedies.

For Charitable Donors

  • “Above-the-line” charitable deductions: Deduct up to $300 in 2020 qualified charitable contributions (excluding Donor Advised Funds), even if you are taking a standard deduction.
  • Donate all of your 2020 AGI: You can effectively eliminate 2020 taxes owed, and then some, by donating up to, or beyond your AGI. If you donate more than your AGI, you can carry forward the excess up to 5 years. Donor Advised Fund contributions are excluded.

For Business Owners (and Certain Not-for-Profits)

  • Paycheck Protection Program loans (potentially forgivable): The Small Business Administration (SBA) Paycheck Protection Program (PPP) is making loans available for qualified businesses and not-for-profits (typically under 500 employees), sole proprietors, and independent contractors. Loans for up to 2.5x monthly payroll, up to $10 million, 2-year maturity, interest rate 1%. Payments are deferred and, if certain employment retention and other requirements are met, the loan may be forgiven.
  • Economic Injury Disaster Loans (with forgivable advance): In coordination with your state, SBA disaster assistance also offers Economic Injury Disaster Loans (EIDLs) of up to $2 million to qualified small businesses and non-profits, “to help overcome the temporary loss of revenue they are experiencing.” Interest rates are under 4%, with potential repayment terms of up to 30 years. Applicants also are eligible for an advance on the loan of up to $10,000. The advance will not need to be repaid, even if the loan is denied.
  • Payroll tax credits and deferrals: For qualified businesses who are not taking a loan.
  • Employee retention credit: An additional employee retention credit (as a payroll tax credit), “equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.” Excludes businesses receiving PPP loans, and may exclude those who have taken the EIDL loans
  • Net Operating Loss rules relaxed: Carry back 2018–2020losses up to five years, on up to 100% of taxable income from these same years.
  • Immediate expensing for qualified improvements: Section 168 of the Internal Revenue Code of 1986 is amended to allow immediate expensing rather than multi-year depreciation.
  • Dollars set aside for industry-specific relief: Please be in touch for a more detailed discussion if your entity may be eligible for industry-specific relief (e.g., airlines, hospitals and state/local governments).

For Employees/Plan Participants

  • Retirement plan loans and distributions: Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020. Distributions described above in In General.
  • Paid sick leave: Paid sick leave benefits for COVID-19 victims are described in the separate, March 18 R. 6201 Families First Coronavirus Response Act, and are above and beyond any benefits received through the CARES Act. Whether in your role as an employer or an employee, we’re happy to discuss the details with you upon request.

For Employers/Plan Sponsors

  • Relief for funding defined benefit plans: Due date for 2020 funding is extended to Jan. 1, 2021. Also, the funding percentage (AFTAP) can be calculated based on your 2019 status.
  • Relief for facilitating pre-retirement plan distributions and expanded loans: As described above for Employees/Plan Participants, employers “may rely on an employee’s certification that the employee satisfies the conditions” to be eligible for relief. The participant is required to self-certify in writing that they or a direct dependent have been diagnosed, or they have been financially impacted by the pandemic. No additional evidence (such as a doctor’s release) is required.
  • Potential extension for filing Form 5500: While the Dept. of Labor (DOL) has not yet granted an extension, the CARES Act permits the DOL to postpone this filing deadline.
  • Exclude student loan pay-down compensation: Through year-end, employers can help employees pay off current educational expenses and/or student loan balances, and exclude up to $5,250 of either kind of payment from their income.

For Unemployed/Laid Off Americans

  • Increased unemployment compensation: Federal funding increases standard unemployment compensation by $600/week, and coverage is extended 13 weeks.
  • Federal funding covers first week of unemployment: The one-week waiting period to start collecting benefits is waived.
  • Pandemic unemployment assistance: Unemployment coverage is extended to self-employed individuals for up to 39 weeks. Plus, the Act offers incentives for states to establish “short-time compensation programs” for semi-employed individuals.

For Students

  • Student loan payments deferred to Sept. 30, 2020: No interest will accrue either. Important: Voluntary payments will continue unless you explicitly pause them. Plus, the deferral period will still count toward any loan forgiveness program you’re in. So, be sure to pause payments if this applies to you, lest you pay on debt that will ultimately be forgiven.
  • Delinquent debt collection suspended through Sept. 30, 2020: Including wage, tax refund, and other Federal benefit garnishments.
  • Employer-paid student loan repayments excluded from 2020 income: From the date of the CARES Act enactment through year-end, your employer can pay up to $5,250 toward your student debt or your current education without it counting as taxable income to you.
  • Pell Grant relief: There are several clauses that ease Pell Grant limits, while not eliminating them. It would be best if we go over these with you in person if they may apply to you.

For Estates/Beneficiaries

  • A break for “non-designated” beneficiaries: 2020 can be ignored when applying the 5-year rule for “non-designated” beneficiaries with inherited retirement accounts. The 5-Year Rule effectively ends up becoming a 6-Year Rule for current non-designated beneficiaries.

There. You’re now familiar with much of the critical content of the CARES Act! That said, given the complexities involved and unprecedented current conditions, there will undoubtedly be updates, clarifications, additions, system glitches, and other adjustments to these summary points. The results could leave a wide gap between intention and reality.

As such, before proceeding, please consult with us and other appropriate professionals, such as your accountant, and/or estate planning attorney on any details specific to you. Please don’t hesitate to reach out to us with your questions and comments. It’s what we’re here for.

Reference Materials:

U.S. Small Business Administration, Paycheck Protection Program and Disaster Assistance

The CARES Act establishes a new loan program through the Small Business Association (SBA), to aide small businesses who have had to lay off employees, and or, suspend their operations. To be eligible for a loan under this section an entity must have less than 500 employees, which includes full time and part-time workers.

Eligible businesses include:

  • Sole proprietors, and certain self-employed individuals
  • Independent contractors
  • Nonprofit organizations under section 501(c)(3)
  • food service industry businesses with less than 500 employees per physical location

Loans will be administered by SBA-approved lenders, and are limited to the lesser of:

  • 2.5 times the average total monthly payroll costs incurred during the 1-year period before the date on which the loan is made. Seasonal employers, and employers not in business between February 15, 2019 and July 30, 2019, will use an alternative calculation period.
  • $10,000,000.

Payroll costs for determining the eligible loan amount include:

  • Salaries, wages, commissions
  • Payment of cash tips
  • Payment for vacation, parental, family, medical, or sick leave
  • Payment required for group health care benefits, including insurance premiums
  • Payment of any retirement benefit
  • Payment of State or local tax assessed on employee compensation

Payroll costs do not include annual compensation in excess of $100,000 per person, or compensation of an employee whose principal residence is outside of the United States. They also do not include Federal employment taxes imposed or withheld. Qualified family or sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act, will also not count as payroll costs.

Proceeds from a loan under this program may only be used for the following purposes:

  • Payroll costs
  • Costs related to continuation of group health care benefits and insurance premiums
  • Employee salary/compensation
  • Rent and utilities
  • Interest on other debt incurred before February 15, 2020

Loans taken under this program are eligible for full or partial forgiveness. The forgiven amount will be equal to the amount actually paid for payroll costs (not including salary amounts over $100K), benefits, rent, utilities and mortgage interest during the eight weeks following disbursement of the loan. Additionally, amounts forgiven will not be included in gross income as cancelation of indebtedness income.

The amount forgiven will decrease ratably if the employer does not retain an equivalent number of employees between February 15, 2020 and June 30, 2020, as it employed between either February 15, 2019 and June 30, 2019, or January 1, 2020 and February 15, 2020. Further reductions to the forgiveness amount will be incurred if the employer cuts an employee’s compensation by more than 25% (for employees making less than $100K), as compared to the previous quarter.

Any amounts not forgiven will have a maximum maturity of 10 years from the date the borrower applies for loan forgiveness, and maximum interest rate of 4%. Payments on these loans will be deferred for 6 to 12 months.

In response to the COVID-19 pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This legislation is the third round of federal funding aimed at providing economic support for individuals and businesses. Below are some of the key provisions relating to small businesses and companies.

  • Paycheck Protection Program (PPP) – The CARES Act establishes a new loan program through the Small Business Association (SBA), to provide financing for businesses with less than 500 employees, including sole proprietors and independent contractors. Eligible businesses may borrow up to the lesser of $10,000,000, or 2.5 times their prior year’s average total monthly payroll costs (subject to some limitations). Loan proceeds that are used to cover certain costs over an 8-week period, may be eligible for complete or partial forgiveness. Amounts not forgiven must be paid back over a 10-year period and have a maximum interest rate of 4%.
  • Economic Injury Disaster Loans (EIDLs) – These disaster relief loans administered by the SBA have been around for a long time, providing working capital loans to small businesses. EIDLs offer 30-year loans up to $2,000,000, with interest rates of 3.75% and 2.75% for small businesses and nonprofits respectively. The CARES Act provides for an advanced payment of up to $10,000 for those businesses applying for this type of loan. The $10,000 advance will be paid within three days of the request, and may be used to maintain payroll, provide sick leave to employees, make rent/mortgage payments, meet increased production costs due to supply chain disruptions, or pay other business obligations. The $10,000 advance is not required to be repaid under any circumstances.
  • Small Business Debt Relief Program – The SBA will cover all loan payments for six months, for small businesses who have new or existing SBA loans, that are not EIDLs or PPP loans. Payments covered include interest, principal, and fees.
  • Employee Retention Credit for Employers Subject to Closure Due to COVID-19 – This provision of the CARES Act provides a refundable tax credit for businesses and nonprofits meeting at least one of the two criteria:
    1. A business whose operations have been fully or partially shut down due to governmental authority limiting commerce, travel, or group meetings due to COVID-19.
    2. A Business whose revenue (not profit) in 2020 is at least 50% less than revenue from the same quarter in 2019.

The credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee. The calculation of wages for purposes of determining the credit vary by business, employee, and payment type. Any business who believes they are eligible for this credit should consult with their tax advisor. Employers receiving assistance through the Paycheck Protection Program are not eligible for this credit.

  • Deferral of Payment of Payroll Taxes – This provision allows taxpayers (including the self-employed) to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021 and the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability. Employers receiving assistance through the Paycheck Protection Program are not eligible for this deferral.

Stay tuned for more in depth analysis on these, and other, provisions affecting small businesses.


Recovery Rebates for Individuals:

One the most talked about provisions of the CARES Act is the Recovery Rebates for Individuals. The Act creates a refundable tax credit (called the Recovery Rebate) for eligible taxpayers against income on your 2020 tax return. The refundable credit will be paid in the coming weeks, and eligibility will be initially determined based on the taxpayer’s 2019 or 2018 tax return.

The Act defines eligible individuals as “any individual other than a nonresident alien individual, an individual claimed as a dependent on another taxpayer’s return, or an estate or trust.” The amount of the Recovery Rebate is up to $1,200 for single filers, $2,400 for joint filers, and up to $500 for each qualified child. Among other things, a qualified child must be under the age of 17 and claimed as a dependent on the taxpayer’s return.

The amount of the Recovery Rebate will be reduced, and ultimately phased out, once a taxpayer’s adjusted gross income (AGI) reaches certain threshold amounts.

  • Married filing jointly – the credit gets reduced once AGI exceeds $150,000 and phases out completely when AGI exceeds $198,000.
  • Head-of-household – the credit gets reduced once AGI exceeds $112,500 and phases out completely when AGI exceeds $146,500.
  • Single filers – the credit gets reduced once AGI exceeds $75,000 and phases out completely when AGI exceeds $99,000.

For example, a married couple filing a joint return that had an AGI of $140,000 and two qualifying children on their 2019 tax return, would be eligible for a Recovery Rebate of $3,400. However, if that same couple had a 2019 AGI of $180,000, then their credit would be reduced by $1,500, and they would receive a Recovery Rebate of $1,900.

A taxpayer who receives a reduced credit, or is phased out completely, based on their 2019 tax return, but whose income in 2020 is below the AGI threshold will get this lost amount back when they file their 2020 tax return. Assume the couple from the above example whose AGI in 2019 was $180,000, then reports income of $140,000 in 2020. In this situation the couple would receive a refundable credit of $1,500 on their 2020 tax return.

The Act does not “claw back” rebates received by a taxpayer who is eligible based on their 2019 AGI, and then subsequently reports income above the AGI threshold on their 2020 return. It does appear that a taxpayer would be required to repay any rebate received based on their 2018 AGI, if their income in 2019 made them ineligible for the credit.

Suspension of Required Minimum Distributions (RMDs):

Another notable provision of the CARES Act is the suspension of Required Minimum Distributions (RMDs) for 2020. This applies to both account owners and beneficiaries of Traditional IRAs (including SEP and SIMPLE accounts), 401(k), 403(b), and 457(b) accounts. For those people who turned 70 ½ in 2019 but did not take their first RMD in 2019, they will not have to take the 2019 or the 2020 distribution. People who have already taken RMDs in 2020 may be able to return the distribution back to their account. Prior to the SECURE Act, certain beneficiaries of retirement accounts were required to withdraw the entire account balance by the end of the 5th year after the original account owner died. The CARES Act allows these beneficiaries to not count 2020 as one of these 5 years.

Penalty Free Access to Retirement Plan Funds:

For those impacted by the Coronavirus, the Act permits distributions from IRAs and employer-sponsored retirement plans of up to $100,000, to qualify as “Coronavirus-Related Distributions.” If a distribution is a Coronavirus-Related Distribution, then a number of potential benefits apply including:

  • Exemption from the 10% penalty for people under 59 ½.
  • The distribution is still considered taxable income but is split evenly over the next 3 years. A taxpayer may elect to include all of the income from the distribution on their 2020 return.
  • The distribution is eligible to be put back into a retirement account within 3 years of the date of the distribution. This can be done as a lump sum rollover, or as multiple partial rollovers.
  • Exemption from mandatory Federal withholding of 20% on distributions from employer-sponsored retirement plans.
  • Increasing the amount an individual may borrow from their employer-sponsored retirement plan to $100,000, or 100% of their vested balance. Payments on loans taken in 2020 may be delayed for up to one year.

To be considered a Coronavirus-Related Distribution a person must either have been diagnosed with COVID-19, have a spouse or dependent who has been diagnosed, or who has suffered some type of financial hardship because of the virus.


In response to the COVID-19 pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This legislation is the third round of federal funding aimed at providing economic support for individuals and businesses. Below are some of the key provisions relating to individuals.

  • Recovery Rebate for Individuals – This widely anticipated provision will provide cash payments of up to $1,200 to individuals ($2,400 if you file a joint tax return). Taxpayers will receive an additional $500 for each child under the age of 17 that are claimed as a dependent on the taxpayer’s return. While those eligible will begin receiving this money in the coming weeks or months, taxpayers whose income is above a certain threshold will not receive payments.
  • Suspension of Required Minimum Distributions (RMDs) – The bill also waives required minimum distributions in 2020 for most retirement account owners and beneficiaries. This applies only to those taking RMDs under the rules in place prior to the SECURE Act.
  • Penalty Free Access to Retirement Plan Funds – People who are facing Coronavirus related hardships can take distributions from their retirement accounts and have certain benefits apply. Benefits include:
    • No 10% penalty for people under age 59 ½.
    • Distributions are still taxable, but income can be spread out evenly over three years.
    • Funds withdrawn in 2020 may be put back into a retirement account within three years. This may be done in a lump sum or with multiple rollovers.
  • $300 Above-the Line Deduction for Charitable Contributions – Taxpayers who make charitable contributions in 2020 but do not itemize their Federal deductions because of the increased standard deduction, will now receive a tax benefit for up to $300 worth of these contributions. Contributions must be made in cash and cannot be made to donor-advised funds.
  • Healthcare Benefits – The Act health insurance issuers, including Medicare, to cover any Coronavirus preventative service. This means that people will be eligible to receive the COVID-19 vaccine at no cost (once available). Additionally, over-the-counter medications and menstrual care products, are now considered qualified medical expenses for purposes of HSA distributions.
  • Deferral of Student Loan Payments – The bill suspends student loan payments through September 30, 2020. During this time interest will not accrue on the loans, and each month will count as a qualifying payment under any loan forgiveness program.
  • Increased Unemployment Benefits – Unemployment compensation is increase by $600 a week for up to four months. The Act also extends the amount of time someone can receive benefits for by 13 weeks. Assistance is also extended to those who are self-employed, or otherwise ineligible for unemployment benefits under normal circumstances.

In addition to the provisions effecting individuals, the CARES Act provides benefits to businesses and their employees. Stay tuned for future posts which will discuss these, and other, provisions in more detail. As always, if you have any questions on how the CARES Act may affect you, please reach out to your Rockbridge advisor.

The IRS is extending the federal income tax filing deadline to July 15 as part of a growing effort to stem the financial pain from the coronavirus pandemic, Treasury Secretary Steven Mnuchin announced Friday.

The move gives Americans three months more than they normally would have to file their income tax returns for the 2019 tax year, without incurring interest or penalties.

President Donald Trump later Friday said that “hopefully” by the time the new deadline arrives “people will be getting back to their lives.”

“At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15,” Mnuchin wrote in a tweet about the extension.

“All taxpayers and businesses will have this additional time to file and make payments without interest or penalties,” he wrote.

Trump echoed that suggestion during a White House press conference.

Most Americans are entitled to refunds when they file their federal tax returns.

As of March 13, the Internal Revenue Service had issued 59.2 million refunds out of the 76.2 million million individual income tax returns it had received, or 77.7% of the total number of returns filed by that date.

The average refund check was $2,973, according to IRS data.

Many individual states already had extended their own tax filing deadlines to various dates to give people relief from the financial fallout of the coronavirus outbreak, which has shuttered businesses nationwide and led to large-scale layoffs.

The IRS move will increase pressure on states to align their deadlines with the new one for federal income tax returns.

New York Gov. Andrew Cuomo, asked at a press conference if state residents should pay their state income taxes by the New York deadline of April 15, said the new federal guideline should be followed.

The IRS did not immediately return a call for comment from CNBC. It is not clear if the deadline extension also will include the deadline for funding Individual Retirement Accounts for the 2019 tax year.

A proposal to extend the federal filing deadline to July was included in the Senate’s coronavirus economic stimulus bill, which was released Thursday by Majority Leader Mitch McConnell, R-Ky.

That proposed relief package calls for new federal spending that could top $1 trillion.

Earlier this week, the Treasury Department released guidance that would have pushed back only the deadline for making federal tax payments — not for filing tax returns —  to July 15.

That 90-day reprieve on payments would have applied to 2019 income taxes owed, plus first-quarter tax payments that would have been due on April 15.

Federal lawmakers and members of the tax preparation community had criticized the proposal to have different dates for filing tax returns and making payments. Mnuchin’s announcement ends that debate by having returns and payments each due by July 15.

The White House declined to comment on Mnuchin’s announcement.