Both individuals and businesses have experienced the impact of the COVID-19 outbreak. The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law to provide financial support during the public health crisis. The Act builds on two pieces of legislation previously passed to offer more support to businesses and individuals. The changes include alterations to tax policy. But who can benefit from the CARES Act? There are several parts to the bill, which are designed to help individuals earning at different levels and businesses too.
The Recovery Rebate
About half of the tax cuts are accounted for by the recovery rebate for individual taxpayers. This provides $1,200 refundable tax credit for individuals or $2,400 for joint taxpayers, as well as $500 for each child. It is credited against tax liability and refundable for those with no liability to offset, so the rebates won’t be counted as taxable income. The rebates are calculated using 2019 tax returns or 2018 tax returns if they haven’t been filed. After filing a 2020 tax return, those who are eligible for a larger rebate can claim the difference.
The rebate phases out at 5 percent per dollar of qualified income, or $50 per $1,000 earned for:
- $75,000 for singles
- $112,500 for heads of households
- $150,000 for joint taxpayers
It phases out entirely for single taxpayers with no children at $99,000 and $198,000 for joint taxpayers. Dependent children under age 17 are taken into account for this purpose. Those with no income or very little income are still eligible for the rebate, as long as they are not a dependent of someone else and have a work-eligible SSN.
Seniors whose income comes solely from Social Security, veterans whose income is from disability payments and people in similar situations are eligible if they are not a dependent of anyone else. The rebate can be based on Form SSA-1099, Social Security Benefit Statement or Form RRB-1099 to help seniors. However, seniors should still file their 2019 tax return as soon as they can to receive their rebate as quickly as possible.
So how do you get your rebate? Most people will not have to do anything to benefit from this tax relief. As it will be based on your tax return for 2019, or for 2018 if you have yet to file your 2019 return, there is no need to apply for anything. Even if you do not owe any tax due to low income, you will be eligible. If you have not filed your 2019 tax return yet, you should do it as soon as possible.
Business Benefits from the CARES Act
Most of the remaining tax cuts from the CARES Act go to businesses. Employers can claim a 50% refundable payroll tax credit on wages paid up to $10,000. Businesses that have been affected by shutdowns during the health crisis and those who have experienced a decrease in gross income compared to last year are eligible for the credit. It is to be used for employees who are still employed by the company but are not currently working due to the crisis if a business has more than 100 employees. If there are 100 or fewer employees, it can be used to pay all employee wages.
Businesses also benefit from an employer payroll tax deferral. Another benefit to businesses is that restrictions from the Tax Cuts and Jobs Act (TCJA) have been loosened. Active losses to pass-through businesses can be offset against other forms of income, with no limit in place. This will primarily benefit high-earning households, with incomes over $1 million. Other benefits to business include looser limits on net operating loss carrybacks and interest deductions. Employers and self-employed people can also delay the payment of their Social Security taxes, which will then be due to be paid over two years. This measure is available to all businesses, regardless of whether the crisis has affected them.
While businesses see many benefits from the tax relief measures in the CARES Act, individuals also gain some help. Almost half of the money spent as a result of the Act will go to helping low and middle-income individuals and families keep their finances boosted during this difficult period. If you are eligible for a rebate, you will automatically receive it, so you don’t need to take any action. Filing your 2019 tax return, if you haven’t already done so, is a sensible thing to do.