COVID-19 Update: Stimulus Package – What’s in It?

Below is an initial summary of provisions of the stimulus package bill that should be of interest to our clients.  Please note the final bill has not been voted on by the Senate or House.  Even the fine print on this bill has fine print, so if it becomes law it will take days to fully digest.  Some or all of the below may not be part of the final bill.  We will provide full details upon enactment. 

Small businesses will be eligible to receive emergency loans if they keep their workers

The bill provides federally guaranteed loans available at community banks to small businesses that pledge not to lay off their workers. The loans would be available during an emergency period ending June 30 and would be forgiven if the employer continued to pay workers for the duration of the crisis. Small businesses will be able to take out loans of up to $10 million, and employers could use the money to pay employees making up to $100,000 a year.  Loans taken for this purpose are forgiven if the business does not lay off its employees (forgiveness is scaled down as layoffs rise). In order to be eligible for a loan, a firm must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began. What businesses are eligible or how these loans will be administered is not known at this time.

Business payroll tax relief

Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on Dec. 31, 2021 and the other half owed on Dec. 31, 2022.

Direct payments to taxpayers

The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). This “credit” will entail a check based on your most recently filed tax return (2018 or 2019 tax return) direct-deposited to your bank account on file or sent via mail.  If you haven’t filed a tax return, the bill allows Treasury to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.

The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers. Additionally, taxpayers with children will receive a flat $500 for each child.

Other business provisions

The bill includes technical corrections to the depreciation treatment of qualified improvement property (QIP).

Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income.

The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), has been expanded to 50 percent of EBITDA for 2019 and 2020.

The bill also provides $562 million to ensure the Small Business Administration can cover Economic Injury Disaster Loans to businesses.

Retirement Plans

The bill waives the 10 percent early withdrawal penalty on retirement account distributions for taxpayers facing virus-related economic challenges. Withdrawn amounts are taxable over three years, but taxpayers can recontribute the withdrawn funds into their retirement accounts for three years without affecting retirement account caps. The bill also waives required minimum distribution rules for certain retirement plans in calendar year 2020.

Students with federal loans can suspend payments until Sept. 30, interest-free. Students who must drop out of school because of the virus also don’t have to pay loans for that time.

Unemployment benefits

Lawmakers agreed to an expansion of unemployment benefits that would extend jobless insurance by 13 weeks and include a four-month enhancement of benefits. The program was broadened to include freelancers, furloughed employees and gig workers.  Most people who lost their jobs can already file for state unemployment insurance, and millions have tried to do that already, overwhelming state systems. This Senate bill will give an extra $600 per week for up to four months to people already receiving their states’ unemployment insurance.  The bill also temporarily expands unemployment insurance to people who would like to work but can’t because they are sick or are caring for a family member who is, including people who are self-employed or who don’t have an extensive work history.