The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which became law on March 27 is an estimated $2 Trillion package aimed to provide economic relief and stimulus for individuals and businesses.  The CARES Act contains numerous tax provisions affecting individuals and businesses, some of which are highlighted below.



Required minimum distributions (RMDs) and premature distribution penalties on plan loans are all modified for 2020.

Required Minimum Distributions

The 10% early distribution penalty, when applicable in light of the pre-existing IRS Tax Code (Tax Code) exclusions from such penalty, is temporarily waived for distributions paid from retirement plans (Plan) and IRAs where up to $100,000 is withdrawn for reasons related to COVID-19.

The federal income tax payable with respect to such Plan or IRA distributions may be paid to the U.S. Treasury in three or fewer years.  In addition, these amounts may be paid back to the Plan or IRA over three years or less, without changing the participant’s annual plan contribution limits in each such year.

The RMD amount for 2020 is waived. This allows amounts otherwise required to be paid to participants to remain in the plan and not be taxed as income, and protects plan assets from being sold at depressed values.

Plan Loans

Plan loans may exceed existing limits when obtained in 2020 for reasons related to COVID-19.  Plan sponsors may allow participant loans of up to a maximum amount of $100,000 or 100% of the participant’s account balance (increased from the lower of $50,000 or 50% of the account balance).  Loan repayment starting dates may also be delayed for the participant in the Plan.


Due dates for IRA contributions and employer contributions to retirement plans for 2019 are extended until July 15, 2020.  HSA Plan contributions for 2019 are also extended.


A COVID-19-related plan or IRA payment to an individual exist when:

  1. the taxpayer, their spouse or a dependent is diagnosed with COVID-19; or
  2. the taxpayer suffers adverse economic effects due to quarantine, furlough, lay off, reduced work hours, closing, or reductions in the business activity due to COVID-19, where such business is operated by the taxpayer.

Controlled groups of business entities have a limit of $100,000 per participant if more than one plan exists.  An employee may certify to a plan that such conditions have been met.

In addition, single employer pension plans have been provided with relief to meet required funding obligations by delaying the contribution due date until January 1, 2021.  Interest will accrue in the deferred payment owed to the single employer plan and adjustments will be permitted to occur in Tax Code Section 436 and ERISA Section 206 adjusted funding target percentages.



The Tax Code now includes a new deduction for up to $300 for 2020, above the line, in calculating adjusted gross income (AGI), for charitable contributions, which applies when a taxpayer does not elect to itemize deductions.


The limit on qualified charitable cash contribution deductions in increased for 2020 from 60% of the individual’s AGI to 100% of the individual’s AGI.  Excess charitable contribution amounts are to be carried over to future tax years under existing Tax Code provisions.

C Corporations

The deductible limit for “C” corporation charitable contributions is increased to 25% from 10% of taxable income for 2020.



There is now in effect (no filing required) an automatic IRS extension to file and pay (without interest or penalty) by July 15, 2020 any income tax balances owed on April 15 for tax year 2019.  See IRS Notice 2020-18 for more information.

State tax authorities are granting extensions to file and pay taxes owed on a state-by-state basis.  Consistent with the federal government, the Massachusetts Department of Revenue granted individual taxpayers an automatic extension to July 15 to file and pay taxes owed on April 15 for tax year 2019.  However, the DOR has not yet resolved whether or not it will waive interest and penalty amounts with respect to such delayed filings and tax payments.



Employee Retention Tax Credits

An employee retention tax credit is available to eligible employers that close their businesses or suffer large business declines due to COVID-19.  This tax credit applies to the employer’s share of the relevant FICA employment taxes for each quarter, which equals 50% of the qualified employee wages.  This 50% tax credit is based on an amount that may not exceed $10,000 in wages paid to each person for all covered quarters in 2020.  This credit is reduced by the other described credits allowed under the CARES Act, and it relates to all eligible employees for each such quarter.

If the employee retention credit exceeds such limited amount, the difference may be refunded to the employer as a federal tax over payment.  This benefit may also apply to tax-exempt entities.  There are separate detailed tests that are applied to determine the extent of the required business decline and other qualifications to obtain this tax credit.

Deferred FICA Tax Payment

Employer and self-employed persons may now defer payment of applicable FICA payroll taxes for 2020.  The employer portion of employment taxes or self-employment taxes may be deferred to December 31, 2021 and December 31, 2022.  However, 50% of the total deferred payroll taxes for 2020 must be repaid on each such date.  Penalties will not apply for non-payment of taxes under these provisions for 2020.  The tax deferral period is from March 27, 2020 to January 1, 2021.

Expansion of Net Operating Loss and Related Carryback Rules

The net operating loss (NOL) carryover and carryback rules are expanded.  NOLs for 2018, 2019 and 2020 are now eligible for a five-year loss carryback and federal income tax refund period.  The 80% prior limit in NOL usage per year is eliminated, so the loss may be fully utilized to offset prior or future net income in any applicable tax year.

The employer corporate change in control loss limiting rules will not apply to stock or equity transfers made as part of a COVID-19 covered loan.

Previously, non-corporate taxpayer losses were limited to $250,000 ($500,000 for a jointly filed married personal tax return) under Tax Code Section 461.  The CARES Act eliminates the prior dollar limit on such losses, so any current year loss amount may be utilized in the relevant tax year for 2018, 2019 and 2020, thus creating possible prior year federal income tax refund claim situations.

Changes to the 2017 Tax Cuts and Jobs Act

Alternative Minimum Tax credits that were deferred under the 2017 Tax Cuts and Jobs Act (TCJA) may now be fully utilized and refunded in 2018 or 2019 without the previously required four-year (2018-2021) utilization period.  If the taxpayer’s 2019 tax return is delayed, the refund may be elected to be paid for 2018 by the taxpayer.

Tax Code Section 163(j), previously amended by the TCJA, increases the limit on deductible interest expense paid from 30% to 50% for the greater of the 2020 or 2019 (by taxpayer election) tax return adjusted taxable income amounts.  The 2019 election may be more beneficial if 2020 net income declines materially.

Tax returns for tax years 2018 and 2019 may be amended to claim bonus depreciation amounts that were not available due to a drafting error that was enacted as part of TCJA, making further tax refund claims possible.

Accounting Changes

Congress has enacted certain changes in the accounting rules that apply when an idle asset is placed in service, and for depreciation of idle assets among other matters, and which will also involve GAAP and SEC Disclosure questions as well.

Small Business Loans

Government-sponsored small business loans provided under the CARES Act are stated to not result in cancellation of debt income for federal income tax purposes if later forgiven. Separate grants provided by the government to certain qualified businesses appear to result in taxable gross income to the grantee.  Tax Code Section 118(b) had previously excluded from gross income grants that were treated as capital contributions received from the government by a corporation.  Other kinds of entities tax treatment for this purpose is less clear but such grants are likely to result in taxable income absent further legislation.



Eligible individuals are entitled to be paid up to $1,200 per person (or $2,400 for married couples), plus an extra $500 for each qualified child.  There is a phase out for this benefit when adjusted gross income for 2019 (or 2018 if 2019 federal taxes are not yet filed with the IRS) exceeds $75,000 (or $150,000 for married couples filing jointly).  The applicable reduction in the cash benefit is 5% of individual adjusted gross income in excess of the applicable $75,000 (or $150,000) maximum stated income amounts.

Non-resident alien individuals, individual dependents of other taxpayers, and Trusts and Estates are not eligible for the cash payments.



If you have questions concerning tax provisions contained in the CARES Act, or tax issues affecting your or your business, please contact Richard Hindlian in our Tax Practice.


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