Do you want to learn all about the Coronavirus Aid, Relief, and Economic Security Act (CARES) and the Paycheck Protection Program (PPP)?
Here at Gusto, we want our clients to have all the available information and support they need to succeed, especially during these uncertain times. That’s why we’re so happy to bring you expert knowledge about CARES and PPP from our partners at CPA Academy.
CPA Academy is an essential resource for people to stay up-to-date on everything related to accounting. They host edifying webinar presentations, and they also offer self-study CPE courses.
Their webinar “Paycheck Protection Program (‘PPP’) Loans and CARES Act” featured essential insights from Jason Freeman. CPA Academy hosted the live webinar on April 16, 2020, and you can check out the full webinar here. The webinar is jam-packed with information essential for your business (or the businesses you advise), and today, we’re offering you valuable details from the first section of their webinar.
Jason Freeman is an attorney and certified public accountant. He serves as the president of the North Texas chapter of the American Academy of Attorney-CPAs and is also the founder of Freeman Law PLLC. Jason presented comprehensive information regarding the background, programs, and tax amendments of the CARES Act and the Paycheck Protection Program (PPP), and we’re thrilled to relay his expert knowledge on the subject.
Unpacking the initiatives and programs of the federal CARES Act 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES) was passed and signed into law on March 27, 2020. The bill passed without contention in the Senate with a vote of 96-0, and the House of Representatives passed the bill through an unrecorded voice vote with little dissension. Jason Freeman explained that the bill contains many initiatives and programs aimed at providing cash flow for small businesses and individual taxpayers. The bill aims to stimulate the economy and support businesses so that they can continue paying their workers during the COVID-19 pandemic. Jason observed that we’re living through a truly historic moment based on the monetary size of the CARES Act:
It was a $2.2 trillion, give or take, economic relief act. Just looking historically, that’s the biggest economic relief act that we’ve ever seen in American history.– Jason Freeman
The United States is taking on this unprecedented crisis by implementing a bold solution that contains many initiatives and programs, including individual tax provisions. One such provision is a Recovery Rebate Credit that the Internal Revenue Service is distributing via mail and direct deposit. The IRS provides a tool on their website titled Get My Payment for taxpayers to update their mailing address and direct deposit information so that they can receive their stimulus checks.
Other individual tax provisions in the CARES Act include increasing people’s ability to withdraw funds and take loans from qualified retirement accounts. Jason explained additional tax provisions that involve charitable deductions:
The Act also increases or provides for an ability for individuals to take an above-the-line charitable deduction of up to $300. This is available to taxpayers, whether or not they itemize their deductions.– Jason Freeman
In addition to the CARES Act providing numerous individual provisions to support taxpayers, the Act also provides provisions for businesses. The Act offers the Employee Retention Credit, which decreases employment taxes. The credit pays 50% of employment taxes quarterly. Jason noted that a drawback to this provision is that it is incompatible with Paycheck Protection Program (PPP) loans:
One huge caveat … is where the taxpayer receives, for example, a PPP loan, they’re not going to be able to double-dip and take that credit. But you should, nonetheless, be aware that [the Employee Retention Credit is] out there.– Jason Freeman
In addition to the Employee Retention Credit, Jason also explained another provision aimed at supporting employers. The CARES Act delays the due date for employers to submit payroll taxes. The payroll can be paid in two installments — one half at the end of 2021 and one half at the end of 2022. Like the Employee Retention Credit, this provision is not available for people receiving a Paycheck Protection Program (PPP) loan.
CPA Academy contributor Jason Freeman masterfully unpacked both the individual and business provisions outlined in the Coronavirus Aid, Relief, and Economic Security Act (CARES). Understanding such provisions is essential for the well-being of your business and your employees during this unprecedented time. Likewise, if you’re an accountant, it’s your job to make your clients aware of these provisions.
Tax changes in the federal CARES Act 2020
In addition to understanding the individual and business initiatives laid out in the Coronavirus Aid, Relief, and Economic Security Act (CARES), it is also essential to understand how the Act amends existing tax provisions. The CARES Act changed several provisions of the Tax Cuts and Jobs Act of 2017 (TCJA). Jason explained the major retroactive change implemented by the CARES Act:
One of the major changes was [that] net operating losses were … liberalized and allowed to be carried back. So the CARES Act removed the 80% of taxable income limitation on net operating losses, and it also allows for the carryback of net operating losses up to five years … so retroactively.– Jason Freeman
The CARES Act retroactively removed 80% of taxable income limitation on net operating losses to help businesses financially and help them maintain their workforce.
The Coronavirus Aid, Relief, and Economic Security Act (CARES) also made it easier for taxpayers to obtain business interest deductions. Jason explained that taxpayers have the option to amend their previous tax returns if they’re now eligible for a deduction:
The Act got rid of restrictions on the deduction of excess loss, excess business losses, and allows for the deduction of those for non-corporate taxpayers. So where you have a taxpayer who was prohibited from such deductions in the past, [for example,] in 2018, that has been lifted and removed. Those taxpayers can also go back and file amended returns.– Jason Freeman
In addition to removing deduction limitations, CARES also corrected an oversight of the Tax Cuts and Jobs Act of 2017 (TCJA):
“The Act also removed or also fixed a legislative screw-up from the TCJA, and provided a technical fix to the scope of bonus depreciation, under Section 168, and gives taxpayers the ability to bonus depreciate so-called Qualified Improvement Property [QIP], which was inadvertently left out of the scope of Section 168, when the TCJA was enacted.”– Jason Freeman
Taxpayers now can receive bonus depreciation on Qualified Improvement Property (QIP), meaning interior, non-structural improvements on non-residential properties, such as drywall or plumbing.
Jason Freeman’s explanation of the amendments made to the Tax Cuts and Jobs Act of 2017 (TCJA) is essential for your business or the businesses you advise. You may be eligible for additional deductions in previous fiscal years, so take the time to find out if you’re qualified and amend your previous tax returns.
Paycheck Protection Program (PPP) loan forgiveness
After explaining key tax changes amended by the CARES Act, our friend from CPA Academy, Jason Freeman, explained the Paycheck Protection Program (PPP) and its benefits to your business. The Paycheck Protection Program was implemented by the CARES Act to encourage employee retention during the COVID-19 crisis, and qualifying businesses can receive up to $10 million in funds. The program was funded up to $349 billion by the CARES Act, but unfortunately, the funds may already be exhausted:
There are actually reports out over the last few days from The Wall Street Journal and other sources indicating that most, if not all, of this money very quickly or maybe even within the day … may be spoken for. So it raises a question … of whether there will be additional funding into this program once it is all used up.– Jason Freeman
Although all the money may be spoken for, your business may still be able to receive a Paycheck Protection Program (PPP) loan in the future. Jason noted that both the Senate and the House of Representatives are discussing the possibility of additional funds, and Secretary of Treasury Steven Mnuchin has already requested that $250 billion be added to the program.
So why are funds from the Paycheck Protection Program (PPP) going so fast? Jason explained that a PPP loan practically functions as a grant because of loan forgiveness:
The capstone of this program is the fact that it allows for part or all of the amount of the loan to be forgiven, just completely forgiven. In that sense [it’s] looking more like a grant than a loan, without giving rise to cancellation of indebtedness income for federal tax purposes.– Jason Freeman
It’s no mystery why businesses have already exhausted the $349 billion allocated to the Paycheck Protection Program. PPP loan forgiveness provides funds for businesses struggling during the pandemic and encourages them to retain employees.
Learn more about CARES and the Paycheck Protection Program
The Coronavirus Aid, Relief, and Economic Security Act (CARES) has implemented a number of programs and initiatives designed to stimulate the economy and help businesses during this unprecedented crisis. The CARES Act’s implementation of tax provisions as well as its amendments to the Tax Cuts and Jobs Act of 2017 (TCJA) offer financial support to both individuals and businesses during this period of economic fallout.
Perhaps the most important program for your business initiated by CARES is the Paycheck Protection Program. Your business may be eligible for up to $10 million, and the program even offers loan forgiveness! While funds may already be depleted, there is a strong possibility more will be added in the future.
Everyone here at Gusto is so incredibly appreciative of our friends from the CPA Academy. If you want to learn more about CARES and PPP, make sure to check out the full webinar here. Additionally, make sure to check out Part Two of the CPA Academy webinar “PPP Loans and the CARES Act FAQ” for invaluable information regarding your eligibility for PPP loans, and visit our COVID-19 hub to learn more about relief loans.