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Congress is considering a number of proposals that seek to mitigate the economic effects of the COVID-19 pandemic. One such proposal, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (S. 3548), was introduced in the Senate on March 19, 2020. On March 22, 2020, the Senate released an updated version of the CARES Act. A cloture vote on the motion to proceed on the amended version was rejected on March 22.1
Tax relief for individuals and businesses in the CARES Act includes
This is the latest in a series of legislative packages addressing the COVID-19 pandemic. Two bills have already been enacted into law: the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (P.L. 116-123) and the Families First Coronavirus Response Act (P.L. 116-127).
This report briefly summarizes the major provisions in the updated version of the CARES Act, released March 22, 2020 (Table 1), as well as Division B of the earlier version of the CARES Act (S. 3548) (Table 2).2 Links to CRS resources that offer additional information are provided. Legislative discussions concerning the CARES Act and other stimulus proposals are ongoing.
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Provision |
Description |
CRS Resources |
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Title II, Subtitle B—Rebates and Other Individual Provisions |
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2020 recovery rebates for individuals |
Credit against 2020 income taxes, but advanced, generally based on information from 2019 income tax returns. Credit equals $1,200 ($2,400 for married joint filers). Taxpayers eligible for the credit can also receive $500 for each child eligible for the child tax credit. The total credit phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($112,500 for head of household filers, $150,000 for married joint returns). Generally, all individuals must have social security numbers. (Among members of the armed forces, only one spouse must have an SSN). Taxpayers must have filed a 2019 return (or filed a 2018 return if they did not file a 2019 return) in order to get a rebate in 2020. (For seniors that did not file a 2019 or 2018 income tax return, information from their 2019 social security benefit statement can be used instead.) Otherwise, it can be claimed on a 2020 income tax return. |
For more, see
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Special rules for use of retirement funds |
For retirement plan distributions, the provision provides an exception to the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes. Income from such distributions would be recognized over three years, and taxpayers can recontribute funds to an eligible retirement plan within three years without regard to the year's contribution cap. Loan limits from retirement plans are increased from $50,000 to $100,000 and repayment deadline is delayed. |
For more on disaster-related special retirement fund access, see
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Temporary waiver of required minimum distribution rules for certain retirement plans and accounts |
Generally, required minimum distribution (RMD) rules required that taxpayers of a certain age withdraw minimum amounts. RMD rules typically apply to taxpayers at age 72 (70½ before 2020). This provision would waive minimum distribution requirements for 2020. |
For background on required minimum distributions, see
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Allowance of partial above-the-line deduction for charitable contributions |
An above-the-line deduction for cash contributions of up to $300 is made available for taxpayers not itemizing deductions. |
For more on the tax treatment of charitable contributions, see
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Modification of limitations on charitable contributions during 2020 |
Income limits apply to both individual and charitable contribution deductions. This provision would suspend the 50% of AGI limit on cash contributions for individuals for 2020. The corporate deduction limit would be increased from 10% of taxable income to 25% for cash contributions. The limit on the deduction of food inventory would be increased from 15% to 25%. The increased limits do not apply to contributions to private foundations and donor-advised funds. |
For more on disaster-related changes in charitable giving limits, see
For more on the tax treatment of charitable contributions, see
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Title II, Subtitle C—Business Provisions |
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Delay of payment of employer payroll taxes |
Employers and self-employed individuals would be able to defer, or postpone, the employer share of the Social Security payroll tax. Deferred tax liability would be paid in two installments: one due by December 31, 2021, and the second by December 31, 2022. The Social Security trust funds would not be affected. |
For more, see
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Modifications for net operating losses |
The provision would allow carrybacks for up to five years for net operating losses (NOLs) recorded in tax years 2018, 2019, and 2020. NOL carryback capabilities were repealed by the 2017 tax revision (P.L. 115-97), and were previously allowed for up to two years. This provision would also temporarily lift the income limitation applicable to the corporate income tax treatment of NOLs under current law. |
For more, see
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Modification of limitation on losses for taxpayers other than corporations |
This provision allows taxpayers not subject to the corporate income tax that incur NOLs, including pass-through businesses and sole proprietorships, to receive the temporary NOL carryback capabilities provided to corporations, as described above. |
For more, see
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Modification of credit for prior year minimum tax liability of corporations |
The corporate alternative minimum tax (AMT) was repealed by the 2017 tax revision (P.L. 115-97). Corporations having AMT credits (for prior year AMT payments) were allowed to claim the credits against regular tax liability for tax years through 2021. This provision makes these credits refundable. |
For more on the corporate AMT before its repeal, see
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Modification of limitation on business interest |
The 2017 tax revision (P.L. 115-97) reduced the limit on the deduction for net interest from 50% to 30% of adjusted taxable income (income before taxes, interest deductions, and depreciation, amortization or depletion deductions). P.L. 115-97 also eliminated the rule that restricted net interest deduction limits to firms with a debt-to-equity ratio above 1.5. These revisions were adopted, in part, to reduce profit-shifting by multinational corporations (by borrowing in the United States). This provision increases the limit to 50% for 2019 and 2020. |
For more, see
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Technical amendments regarding qualified improvement property |
The 2017 tax revision (P.L. 115-97) increased the period for deducting the cost of qualified improvement property (leasehold, restaurant, and retail property improvements) from 15 years to 39 years. This change was apparently a technical error that also prevented these investments from being expensed immediately (sometimes referred to as bonus depreciation). This provision allows these investments to be expensed. |
For more, see
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Source: CRS analysis of the CARES Act, as considered on March 22, 2020. Cloture on the motion to proceed was rejected in the Senate.
Table 2. Provisions in Division B of the CARES Act (S. 3548),
as Introduced on March 19, 2020
|
Provision |
Description |
CRS Resources |
|
Title I—Rebates and Other Individual Provisions |
||
|
2020 recovery rebates for individuals |
Credit against 2020 income taxes, but advanced, generally based on 2018 income tax returns. Credit equals the greater of (1) taxpayer's net income tax liability up to $1,200 ($2,400 for married joint filers). Net income tax liability is income tax liability before the child tax credit and refundable tax credits (like the EITC); or (2) $600 ($1,200 for married joint filers) if the taxpayer has qualifying income. To have qualifying income, taxpayer must have either (a) at least $2,500 in total of earned income, social security income, or veterans' benefits, or (b) gross income above the taxpayer's standard deduction and $1 of net income tax liability. Taxpayers eligible for the credit can also receive $500 for each child eligible for the child credit. The total credit phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for married joint returns). All individuals must have social security numbers. Taxpayers must have filed a 2018 return (or file a 2019 return if they did not file a 2018 return) in order to get a rebate in 2020. Otherwise, it can be claimed on a 2020 income tax return. |
For more, see
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Delay of certain deadlines |
Tax filing deadline extended from April 15, 2020, to July 15, 2020, to align with the extended payment deadline.a Allows individuals required to make estimated tax payments to postpone such payments until October 15, 2020. |
For more on IRS administrative relief for tax filing deadlines following disasters, see
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Special rules for use of retirement funds |
For retirement plan distributions, the provision provides an exception to the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes. Income from such distributions would be recognized over three years, and taxpayers can recontribute funds to an eligible retirement plan within three years without regard to the year's contribution cap. Loan limits from retirement plans are increased from $50,000 to $100,000 and repayment deadline is delayed. |
For more on disaster-related special retirement fund access, see
|
|
Allowance of partial above-the-line deduction for charitable contributions |
An above-the-line deduction for cash contributions of up to $300 is made available for taxpayers not itemizing deductions. |
For more on the tax treatment of charitable contributions, see
|
|
Modification of limitations on charitable contributions during 2020 |
Income limits apply to both individual and charitable contribution deductions. This provision would suspend the 50% of AGI limit on cash contributions for individuals for 2020. The corporate deduction limit would be increased from 10% of taxable income to 25% for cash contributions. The limit on the deduction of food inventory would be increased from 15% to 25%. The increased limits do not apply to contributions to private foundations and donor-advised funds. |
For more on disaster-related changes in charitable giving limits, see
For more on the tax treatment of charitable contributions, see
|
|
Title II—Business Provisions |
||
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Delay of estimated tax payments for corporations |
Corporations would be allowed to postpone estimated tax payments to October 15, 2020. |
|
|
Delay of payment of employer payroll taxes |
Employers and self-employed individuals would be able to defer, or postpone, the employer share of the Social Security payroll tax. Deferred tax liability would be paid in two installments: one due by December 31, 2021, and the second by December 31, 2022. The Social Security trust funds would not be affected. |
For more, see
|
|
Modifications for net operating losses |
The provision would allow carrybacks for up to five years for net operating losses (NOLs) recorded in tax years 2018, 2019, and 2020. NOL carryback capabilities were repealed by the 2017 tax revision (P.L. 115-97), and were previously allowed for up to two years. This provision would also temporarily lift the income limitation applicable to the corporate income tax treatment of NOLs under current law. |
For more, see
|
|
Modification of limitation on losses for taxpayers other than corporations |
This provision allows taxpayers not subject to the corporate income tax that incur NOLs, including pass-through businesses and sole proprietorships, to receive the temporary NOL carryback capabilities provided to corporations, as described above. |
For more, see
|
|
Modification of credit for prior year minimum tax liability of corporations |
The corporate alternative minimum tax (AMT) was repealed by the 2017 tax revision (P.L. 115-97). Corporations having AMT credits (for prior year AMT payments) were allowed to claim the credits against regular tax liability for tax years through 2021. This provision makes these credits refundable. |
For more on the corporate AMT before its repeal, see
|
|
Modification of limitation on business interest |
The 2017 tax revision (P.L. 115-97) reduced the limit on the deduction for net interest from 50% to 30% of adjusted taxable income (income before taxes, interest deductions, and depreciation, amortization or depletion deductions). P.L. 115-97 also eliminated the rule that restricted net interest deduction limits to firms with a debt-to-equity ratio above 1.5. These revisions were adopted, in part, to reduce profit-shifting by multinational corporations (by borrowing in the United States). This provision increases the limit to 50% for 2019 and 2020. |
For more, see
|
|
Technical amendments regarding qualified improvement property |
The 2017 tax revision (P.L. 115-97) increased the period for deducting the cost of qualified improvement property (leasehold, restaurant, and retail property improvements) from 15 years to 39 years. This change was apparently a technical error that also prevented these investments from being expensed immediately (sometimes referred to as bonus depreciation). This provision allows these investments to be expensed. |
For more, see
|
|
Installments not to prevent credit or refund of overpayments or increase estimated taxes |
As part of the transition to a new international tax regime under the 2017 tax revision (P.L. 115-97), firms were required to pay taxes on their prior untaxed foreign earnings (the repatriation tax). Firms could elect to pay these taxes in eight annual installments. Due to what was apparently a technical error, firms that overpaid their regular taxes in 2017 could not receive a refund if they owed taxes on repatriations. This provision allows firms to receive refunds for 2017. |
For more, see
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Restoration of limitation on downward attribution of stock ownership in applying constructive ownership rules |
The 2017 tax revision (P.L. 115-97) treats stock owned by a foreign person as attributable to a U.S. entity owned by the foreign person ("downward attribution"). As a result, stock owned by a foreign person may generally be attributed to (1) a U.S. corporation, 10% of the value of the stock of which is owned, directly or indirectly, by the foreign person; (2) a U.S. partnership in which the foreign person is a partner; and (3) certain U.S. trusts if the foreign person is a beneficiary or, in certain circumstances, a grantor or a substantial owner. Downward attribution rules can result in additional tax to the U.S. entity under rules taxing certain income of controlled foreign corporations. This provision limits the application of the downward application rules to a U.S. corporation owning, directly or indirectly, 50% of the value of stock. |
For more, see
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Source: CRS analysis of the CARES Act (S. 3548, as Introduced).
a. In guidance released on March 18, 2020, the U.S. Department of the Treasury announced that the tax payment deadline had been extended from April 15, 2020, to July 15, 2020. This guidance did not extend the April 15, 2020, filing deadline. See the U.S. Department of the Treasury's March 18, 2020, press release, "Treasury and IRS Issue Guidance on Deferring Tax Payments Due to COVID-19 Outbreak," at https://home.treasury.gov/news/press-releases/sm948. Subsequently, the Treasury announced via tweet that the tax filing deadline would also be moved to July 15, 2020.
Author Contact Information
| 1. |
The Senate vote was on an amendment to H.R. 748, which was used as a legislative vehicle for the amended version of the CARES Act. |
| 2. |
Other tax-related provisions included in other divisions of the CARES Act, and not discussed in this report, include changes that would temporarily suspend excise taxes related to aviation; provide a temporary tax exemption for certain telehealth services; temporarily include certain over-the-counter medical costs as qualified medical expenses for tax purposes; extend the sequestration on direct spending by one year, to 2030; and temporarily provide advance refunding of payroll tax credits for sick leave and paid family leave. For more on the sick and family leave payroll tax credits, see CRS Insight IN11243, Tax Credit for Paid Sick and Family Leave in the Families First Coronavirus Response Act (H.R. 6201) (Updated), by Molly F. Sherlock. |