The Coronavirus Aid, Relief, and Economic Security (CARES) Act—Tax Relief for Individuals and Businesses

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, an updated version of the CARES Act was circulated, as a proposed amendment to H.R. 748. A cloture vote on a motion to proceed, which was designed to allow consideration of the CARES Act, was rejected on March 22. A third version of the CARES Act was released on March 25, 2020. On March 25, the Senate voted 96-0 to pass H.R. 748, having previously amended it with the CARES Act.

Tax relief for individuals and businesses in the CARES Act includes

a one-time rebate to taxpayers;

modification of the tax treatment of certain retirement fund withdrawals and charitable contributions;

a delay of employer payroll taxes and taxes paid by certain corporations; and

other changes to the tax treatment of business income and net operating losses.

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).

On March 23, 2020, an alternative to the CARES Act, the Take Responsibility for Workers and Families Act (H.R. 6379), was introduced in the House. For more information on the tax provision in this proposal, see CRS Report R46283, The Take Responsibility for Workers and Families Act: Division T—Revenue Provisions, coordinated by Molly F. Sherlock.

This report briefly summarizes the major individual and business tax provisions of the CARES Act, as passed in the Senate on March 25, 2020 (Table 1). The report also summarizes tax provisions in earlier versions of the CARES Act, the version released March 22, 2020 (Table 2), as well as Division B of the first version of the CARES Act (S. 3548) (Table 3). Links to CRS resources that offer additional information are provided.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act—Tax Relief for Individuals and Businesses

Updated March 26, 2020 (R46279)

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, an updated version of the CARES Act was circulated, as a proposed amendment to H.R. 748. A cloture vote on a motion to proceed, which was designed to allow consideration of the CARES Act, was rejected on March 22.1 A third version of the CARES Act was released on March 25, 2020.2 On March 25, the Senate voted 96-0 to pass H.R. 748, having previously amended it with the CARES Act.

Tax relief for individuals and businesses in the CARES Act includes

  • a one-time rebate to taxpayers;
  • modification of the tax treatment of certain retirement fund withdrawals and charitable contributions;
  • a delay of employer payroll taxes and taxes paid by certain corporations; and
  • other changes to the tax treatment of business income and net operating losses.

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).

On March 23, 2020, an alternative to the CARES Act, the Take Responsibility for Workers and Families Act (H.R. 6379), was introduced in the House. For more information on the tax provision in this proposal, see CRS Report R46283, The Take Responsibility for Workers and Families Act: Division T—Revenue Provisions, coordinated by Molly F. Sherlock.

This report briefly summarizes the major individual and business tax provisions of the CARES Act, as passed in the Senate on March 25, 2020 (Table 1). The report also summarizes tax provisions in earlier versions of the CARES Act—the version released March 22, 2020 (Table 2), as well as Division B of the first version of the CARES Act (S. 3548) (Table 3).3 Links to CRS resources that offer additional information are provided.

Table 1. Individual and Business Tax Provisions in the CARES Act,
as Passed by the Senate on March 25, 2020

Provision

Description

CRS Resources

Title II, Subtitle BRebates and Other Individual Provisions

2020 recovery rebates for individuals

Would allow a credit against 2020 income taxes, but advanced, generally based on information from 2019 income tax returns.

Credit would equal $1,200 ($2,400 for married joint filers).

Taxpayers eligible for the credit could also receive $500 for each child eligible for the child tax credit.

The total credit to phase 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 or, for Railroad Retirement beneficiaries, their 2019 Social Security equivalent benefit statement, can be used instead.) Otherwise, it could be claimed on a 2020 income tax return.

For more, see

Special rules for use of retirement funds

For retirement plan distributions, the provision would provide an exception to the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-affected individuals. Income from such distributions would be recognized over three years, and taxpayers can recontribute funds to an eligible retirement plan in the first year or within three years without regard to the year's contribution cap. For coronavirus-affected individuals, loan limits from retirement plans would be increased from $50,000 to $100,000 and the repayment deadline is delayed for loans that are due in 2020.

For more, see

Temporary waiver of required minimum distribution rules for certain retirement plans and accounts

In general, required minimum distribution (RMD) rules required that taxpayers of a certain age withdraw minimum amounts annually. RMD rules typically apply to taxpayers after reaching age 72 (70½ before 2020). This provision would waive minimum distribution requirements for 2020.

For background on required minimum distributions, see

Allowance of partial above-the-line deduction for charitable contributions

An above-the-line deduction for cash contributions of up to $300 would be 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 (temporarily 60% for cash contributions through 2025) 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

Exclusion for certain employer payments of student loans

Would temporarily expand the definition of employer-sponsored educational assistance to include qualified student loan payments made to employees in 2020. Under current law, employers can provide their employees with up to $5,250 per employee per year in educational assistance—generally for tuition, fees, and related supplies—that is excluded from wages (and hence not subject to income or payroll taxes). Under this provision, qualified student loan payments would be subject to the overall cap of $5,250 per employee per year.

Payments made by the employer could go to the employee directly or to the lender. Payments could cover both the principal and interest of the qualified student loan. Qualified student loans would be those eligible for the student loan interest deduction (IRC section 221(d)(1)) that are incurred by the employee for the employee's education. This provision would apply to any student loan payment made by an employer on an employee's behalf after the date of enactment and before January 1, 2021.

For background on the tax treatment of employer-sponsored educational assistance, see

Title II, Subtitle C—Business Provisions

Employee retention credit for employers subject to closure due to COVID-19

Would create a refundable payroll tax credit computed as 50% of wages paid by eligible employers. Up to $10,000 in qualified wages could be taken into account per employee in determining the credit amount. Health plan expenses can be treated as wages when computing the credit.

Eligible employers are those who (1) were required to fully or partially suspend operations due to a COVID-19-related order (includes nonprofit employers); or (2) have gross receipts 50% less than gross receipts in the same quarter in the prior calendar year.

Qualified wages depend on the number of employees the employer had during 2019. If the employer had more than 100 full-time employees, qualifying wages are wages paid when employee services are not provided, limited to 30 days per employee. If the employer had 100 or fewer full-time employees, all employee wages paid by eligible employers are credit-eligible.

This credit would not apply to government employers. The Social Security trust funds would not be affected.

For background, see

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 through the end of 2020. 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 in tax years 2018 and 2019.

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 would increase 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 would allow these investments to be expensed.

For more, see

Temporary exception from excise tax for alcohol used to produce hand sanitizer

Undenatured ethanol is subject to the excise tax on distilled spirits that normally applies to alcoholic products for consumption. The current tax rate on distilled spirits is $13.50 per proof gallon. A proof gallon is 50% alcohol. The change would exempt distilled spirits used to make hand sanitizer for 2020.

Source: CRS analysis of the CARES Act, as the Senate passed on March 25, 2020.

Table 2. Individual and Business Tax Provisions in the CARES Act,
March 22, 2020 Version

Provision

Description

CRS Resources

Title II, Subtitle BRebates and Other Individual Provisions

2020 recovery rebates for individuals

Would allow a credit against 2020 income taxes, but advanced, generally based on information from 2019 income tax returns.

Credit would equal $1,200 ($2,400 for married joint filers).

Taxpayers eligible for the credit could also receive $500 for each child eligible for the child tax credit.

The total credit to phase 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 or, for Railroad Retirement beneficiaries, their 2019 Social Security equivalent benefit statement, can be used instead.) Otherwise, it could be claimed on a 2020 income tax return.

For more, see

Special rules for use of retirement funds

For retirement plan distributions, the provision would provide an exception to the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-affected individuals. Income from such distributions would be recognized over three years, and taxpayers can recontribute funds to an eligible retirement plan in the first year or within three years without regard to the year's contribution cap. For coronavirus-affected individuals, loan limits from retirement plans would be increased from $50,000 to $100,000 and the repayment deadline is delayed for loans that are due in 2020.

For more, see

Temporary waiver of required minimum distribution rules for certain retirement plans and accounts

In general, required minimum distribution (RMD) rules require that taxpayers of a certain age withdraw minimum amounts annually. RMD rules typically apply to taxpayers after reaching age 72 (70½ before 2020). This provision would waive minimum distribution requirements for 2020.

For background on required minimum distributions, see

Allowance of partial above-the-line deduction for charitable contributions

An above-the-line deduction for cash contributions of up to $300 would be 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 (temporarily 60% for cash contributions through 2025) 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, Subtitle C—Business Provisions

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 through the end of 2020. 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 would increase 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 would allow these investments to be expensed.

For more, see

Source: CRS analysis of the CARES Act, March 22, 2020, version. Cloture on the motion to proceed was rejected in the Senate.

Table 3. 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

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

Special rules for use of retirement funds

For retirement plan distributions, the provision would provide an exception to the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-affected individuals. Income from such distributions would be recognized over three years, and taxpayers can recontribute funds to an eligible retirement plan in the first year or within three years without regard to the year's contribution cap. For coronavirus-affected individuals, loan limits from retirement plans would be increased from $50,000 to $100,000 and the repayment deadline is delayed for loans that are due in 2020.

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 would be 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 (temporarily 60% for cash contributions through 2025) 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

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 through the end of 2020. 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 would increase 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 would allow 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

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

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

Molly F. Sherlock, Coordinator, Specialist in Public Finance ([email address scrubbed], [phone number scrubbed])
Margot L. Crandall-Hollick, Acting Section Research Manager ([email address scrubbed], [phone number scrubbed])
Grant A. Driessen, Analyst in Public Finance ([email address scrubbed], [phone number scrubbed])
Jane G. Gravelle, Senior Specialist in Economic Policy ([email address scrubbed], [phone number scrubbed])
Donald J. Marples, Specialist in Public Finance ([email address scrubbed], [phone number scrubbed])

Footnotes

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. See https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=116&session=2&vote=00078.

2.

See https://www.appropriations.senate.gov/news/senate-passes-critical-bipartisan-legislation-to-address-national-coronavirus-crisis.

3.

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.