What Was Included in the CARES Act (S.3548)?

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the public health and economic crises caused by the COVID-19 pandemic. The law, identified as S.3548, allocated over two trillion dollars to provide financial relief to individuals, businesses, and healthcare providers. The funding aimed to stabilize the U.S. economy by providing direct assistance to citizens, offering loans to small businesses to maintain payroll, and supporting the healthcare system.

Relief Provisions for Individuals

Economic Impact Payments

A central component of the individual relief measures was the direct Economic Impact Payments sent to millions of Americans. Eligibility was based on adjusted gross income (AGI) from a recent tax return. Individuals with an AGI up to $75,000 received $1,200, and married couples filing jointly with an AGI up to $150,000 received $2,400.

Payments were reduced for higher incomes and phased out for individuals earning over $99,000 and joint filers over $198,000. Families also received an additional $500 for each qualifying child under 17. The IRS managed the distribution through direct deposit, paper checks, or prepaid debit cards.

Expanded Unemployment Compensation

The CARES Act expanded the unemployment insurance system to support workers who lost their jobs. The Federal Pandemic Unemployment Compensation (FPUC) program supplemented state benefits with an additional weekly payment. The Pandemic Unemployment Assistance (PUA) program extended benefits to self-employed workers and independent contractors. Both temporary programs expired in September 2021.

Retirement Account Rules

The CARES Act introduced temporary rules for retirement accounts for the 2020 calendar year to give people greater access to their savings. The law waived the 10% early withdrawal penalty on distributions up to $100,000 from eligible plans like 401(k)s and IRAs for individuals affected by the coronavirus. The act also allowed flexible repayment options over a three-year period. Additionally, the maximum loan amount from a qualified plan was temporarily doubled to $100,000.

Student Loan Payment Suspension

The CARES Act provided relief for federal student loan borrowers by automatically placing most federally held student loans into administrative forbearance. This suspension has since ended. Interest on these loans began accruing again on September 1, 2023, and payments resumed in October 2023.

Charitable Contribution Deductions

To encourage charitable giving, the CARES Act introduced temporary tax deductions for the 2020 and 2021 tax years. The law allowed an above-the-line deduction of up to $300 for cash contributions for those who did not itemize. For itemizers, the act temporarily allowed deductions for cash contributions up to 100% of their AGI.

Assistance Programs for Businesses

Paycheck Protection Program (PPP)

The Paycheck Protection Program (PPP) was designed to help small businesses retain their employees. Administered by the Small Business Administration (SBA), the PPP provided forgivable loans to eligible businesses, primarily those with 500 or fewer employees. The program is no longer accepting applications.

Loan amounts were based on a business’s average monthly payroll costs. For a loan to be fully forgiven, at least 60% of the funds had to be used for payroll costs over a covered period. The remaining funds could be used for other approved expenses like rent, mortgage interest, and utilities.

Employee Retention Credit (ERC)

Another provision for businesses was the Employee Retention Credit (ERC), a refundable tax credit for wages paid during specific periods in 2020 and 2021. The credit was designed to encourage employers to keep employees on their payroll if their operations were suspended or they experienced a significant decline in gross receipts. The eligibility periods and deadlines to claim the credit have passed.

Economic Injury Disaster Loan (EIDL) Program Expansion

The CARES Act expanded the SBA’s Economic Injury Disaster Loan (EIDL) program to assist small businesses experiencing a temporary loss of revenue. A notable change was the EIDL Advance, a non-repayable emergency grant of up to $10,000. The COVID-19 EIDL program stopped accepting new applications at the end of 2021.

Key Business Tax Modifications

Modification of Net Operating Losses (NOLs)

The CARES Act provided tax relief by temporarily altering the rules for Net Operating Losses (NOLs), which occur when a company’s expenses exceed its revenues. The Act allowed businesses to carry back NOLs from 2018, 2019, and 2020 for up to five years. This provision allowed businesses to apply current losses against taxable income from previous, more profitable years. Amending prior tax returns generated immediate tax refunds, providing an infusion of cash flow. The carryback provision was eliminated for most taxpayers for losses arising after 2020.

Suspension of the Excess Business Loss Limitation

The legislation suspended the “excess business loss” limitation for non-corporate taxpayers for the 2018, 2019, and 2020 tax years. This rule had capped the amount of business losses an individual could use to offset non-business income. This change benefited owners of pass-through entities, like sole proprietorships and partnerships, by allowing them to deduct larger business losses against other income sources. The suspension reduced their overall tax liability, and the limitation was reinstated for subsequent tax years.

Deferral of Employer Payroll Taxes

To improve business liquidity, the CARES Act allowed employers to defer the payment of their share of Social Security taxes. This applied to the employer’s 6.2% portion of the tax on employee wages incurred from March 27, 2020, through December 31, 2020. Self-employed individuals could also defer an equivalent amount. The deferred taxes were required to be paid back in two installments, and the repayment period has concluded.

Public Health and Government Funding

Public Health and Social Services Emergency Fund

A portion of the CARES Act was dedicated to the healthcare system through the Public Health and Social Services Emergency Fund. This fund received over $100 billion to provide financial support to hospitals, clinics, and other healthcare providers. The funding was intended to cover healthcare-related expenses or lost revenues attributable to the pandemic. Funds were used for acquiring personal protective equipment (PPE), expanding testing capacity, and investing in research for vaccines and treatments.

Coronavirus Relief Fund

The CARES Act established the Coronavirus Relief Fund, allocating $150 billion in direct assistance to state, local, and tribal governments. This funding was intended to help governments cover necessary expenditures incurred due to the public health emergency. The funds were distributed based on population. Governments could use the funds for expenses related to medical response, public health measures, and economic support for their communities.