The Coronavirus Aid, Relief, and Economic Security Act – the CARES Act – became law Friday, March 27, 2020. This legislation is filled to the brim with various components covering employers, employees, self-employed, retirees, homeowners, etc. For applicable components, multiple government agencies will be working to get these programs in place as quickly as possible. Clarity, guidance, and best practices around this legislation are emerging daily. In an effort to keep my client base informed, this article discusses what I know right now and my thoughts for my clients. Over the coming days and weeks, all of this is subject to change, particularly if new legislation is passed. This article is not an all-exhaustive list for the tax or non-tax components of the CARES Act. Please check in with me if you have any concerns regarding your specific situation.

As a tax advisor, my goal is to educate and help my clients make optimal decisions regarding their tax situations. We find ourselves right now in a place where many of the most pressing financial issues are not necessarily tax related. For those of you with a solid team in place – financial advisor, accountant, attorneys, etc. – you will navigate all of this more easily than others. For those of you who do not yet have such a team in place, I am doing my best to get up to speed on both the tax and non-tax components of this law to be there for you. Even so, understand that there will be quite a bit on which I cannot advise you. I am happy to make referrals to accountants, financial advisors, student loan experts, bankers, retirement planning specialists, corporate attorneys, employment law attorneys, estate attorneys, insurance agents, and others that may best help with your particular situation. In short, I am balancing helping as many folks as I can with not going so far out of my lane that I unintentionally give bad advice.*

Much love,




*Speaking of – in an earlier communication, I noted that $500 per child economic relief payments will be provided regardless of income levels. Not correct! Sorry, folks. That component of the relief payments is also phased out based on income limits. (I feel like I’ve made the big time if I’m sending out redactions.) Payments are on the way within the next 3 weeks. Stay tuned to the IRS’ Coronavirus website for specific details on this.

Unemployment Benefits:

As of March 30, 2020, states have been approved by the federal government to extend unemployment benefits to self-employed individuals. For clarity, this covers those who receive 1099-MISC payments rather than W-2s. Whether self-employed or not, unemployment benefits can be a meaningful subsidy to consider. Under the CARES Act, benefits have been expanded. They now start sooner, last longer, and have a higher payout. Information on your state’s program and how to get an application started is available at the US Department of Labor’s (DOL) website here. Note that unemployment benefits are taxable. Unless new legislation is passed to change this, assume you will pay income tax on any unemployment benefits you receive. If cash flow permits, consider having some level of income tax withholding from your unemployment payments.

For Retirees:

IRA Required Minimum Distributions (RMDs) for 2020 are waived. Many people will withdraw from their IRAs as they normally do because they need the funds, so this change will not be relevant to many. However, if you don’t need your 2020 RMD, you may want to postpone taking a distribution while the markets are figuring out what they want to do. If you’ve already taken your RMD or a partial RMD and don’t need it or want it, you have one or two methods available to you to ‘undo’ the RMD depending on your situation. You may be able to make a 60-day rollover into another IRA, in which case the distribution won’t be taxable. If you’re outside of the 60-day window, the CARES Act relaxes the rules on IRA distributions (see later in this article) that you can use to, in effect, put the funds back in tax-free. Options such as Qualified Charitable Contributions and Roth conversions remain on the table, too. For my clients, speak with your financial advisor first to see if any of these options make sense for you and then we can determine the tax implications. (Note: I’m seeing conflicting commentary on how inherited IRAs are impacted by the RMD changes TBD.)

For Homeowners:

Homeowners with federally backed mortgages can request forbearance, regardless of their delinquency status and without incurring penalties, fees or interest. Eligible homeowners must submit a request to their loan servicers and affirm financial hardship. A servicer is required to grant forbearance for up to 180 days and to extend it for an additional period of up to 180 days at the borrower’s request. Further, except for vacant or abandoned property, servicers of federally backed mortgages can’t initiate any foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for at least 60 days, starting March 18, 2020.


For those who have stopped itemizing personal tax deductions, you’ll be allowed a $300 charitable contribution deduction for 2020 in addition to the standard personal deduction. For those who do itemize, you won’t be allowed the additional $300, but the Adjusted Gross Income limitation for deducting certain charitable contributions has increased to 100%. This means you could potentially wipe out your 2020 income tax liability with some generous giving.

The rules around penalties for early withdrawals from retirement plans have been greatly relaxed. Generally, retirement plan distributions taken before age 59 ½ are subject to a 10% federal penalty in addition to any federal and state income taxes that may be due. The CARES Act removes the 10% penalty for essentially everyone for distributions up to $100,000 in 2020. Further, the taxable income pickup can be spread over 3 years beginning 2020 OR the distribution can be repaid within 3 years to avoid taxation entirely. If you do this, BE CAREFUL! First consider if you don’t have other options and plan to either repay the distribution or pay the tax.

In all this, the IRS has closed much of its operations. They are still accepting electronically filed tax returns, issuing refund checks, and at some point soon, issuing economic relief checks. However, that’s only part of what they do. If you have ongoing tax issues, these may be in limbo for the foreseeable future. Even the Batphone number that only tax practitioners can call is down for now. On the good side, under the IRS’ People First Initiative (oh, the irony), the IRS isn’t pursuing collections too hard for the time being. State taxing departments will vary in their ability to assist you at this time.

For Employers/Businesses:

In addition to the CARES Act programs outlined previously in this article, The Families First Coronavirus Response Act (FFCRA) effective March 18, 2020 requires certain employers to provide expanded paid sick and family leave for certain employees. This legislation has been modified by the CARES Act. Employees can receive up to 80 hours paid sick leave and expanded paid child care leave, while employers are reimbursed by the federal government for at least a portion of this paid leave. Employers are reimbursed either via a dollar-for-dollar offset against payroll taxes or by filing Form 7200 when a refund is due. More information, including which employers are subject to this provision, is at the US DOL’s website here. The IRS’ instructions for completing Form 7200 are here. Note that this provision will apply to many employers with fewer than 500 employees. Self-employed individuals with employees, who are also eligible to receive this credit, do so by reducing their 2020 estimated tax payments accordingly and then claiming the credit on their 2020 personal income tax returns filed in 2021. As of this writing, I’m not encouraging any of my clients to be in a rush to pay 2020 estimated taxes.

The deductibility of business Net Operating Losses has been increased. The Tax Cuts and Jobs Act (TCJA) had restricted NOL rules and they are now freed back up. NOLs arising in 2018-2020 can be carried back five years without limitation. If the last few years have been really good and this year is going to tank, this strategy could result in refunds of previously-paid taxes. NOL carrybacks are not a slam dunk in all situations. It could make more sense to allow the NOL to carry forward into 2021 or 2022 to offset potential income from future years. However, if you expect your business to permanently close (I’m so sorry), an NOL carryback could be a good move. Applicable states may or may not conform to this.

The TCJA also placed a limit on the amount of business losses deductible in a particular year. The CARES Act has done away with this limitation retroactive to 2018. If you had such losses suspended for 2018 or 2019 tax returns that have been filed, consider amending if you would be entitled to refunds. As with the changed NOL rules, you’ll want to do an analysis to make sure this is your best move.

In most cases, payments an employer makes to an employee, or on behalf of an employee, are considered taxable compensation to the employee. One notable exception, with which you are likely already familiar, is health insurance premiums which the employer pays and receives a tax deduction for, but for which the employee doesn’t generally pick up taxable income. Along this vein, the CARES Act allows employers to pay up to $5,250 during 2020 of employee student loan payments (either to the employee or to the lender) on a tax-free basis. This, combined with the Act’s suspension of government-backed student loan repayments through September 30, 2020, could provide meaningful relief to those with significant student loans. (For employers already providing tax-free education benefits, this $5,250 limit is a combined amount across programs.)

The declaration of a federal disaster opens up the door for other, broader tax-free employer payments made for employees. Internal Revenue Code Section 139, added after 9/11, provides that an individual’s “gross income shall not include any amount received by an individual as a qualified disaster relief payment.” Such payments include reasonable amounts for living expenses, housing, medical expenses, transportation, etc. that aren’t reimbursed by insurance. Code Sec 139 includes payments made under an employer’s assistance plan which means an employer can deduct such payments while the employee-recipient will not have taxable compensation. Is this a free-for-all for employers to receive a tax deduction for paying employee personal expenses? Maybe. Although favorably interpreted by the IRS in the past, this area of tax law has so far been used for isolated incidents of short duration. IRS guidance on §139’s applicability to the current situation may or may not be provided at some point. In any event, if you’re an employer in the fortunate position of being able to help your employees in this way, a best practice would be to establish a written plan. See here and here for more discussion and examples of components to include your plan.

There are a number of federal programs, including loans, available to help small businesses, charitable non-profits, and the self-employed. You may be reading this article solely because you want to know which one is available to you and how to get it. This isn’t that article. Determining which, if any, of these programs is a good fit for you is beyond the scope of this discussion. What I will share with you, however, are my overall thoughts for how you can best approach the options available:

  • Before applying for one of the federal loans available, ask yourself a few questions. Have you prepared a 3-month, 6-month, and 1-year cash flow projection to see what your cash needs actually are? Do you have cash reserves and/or loans in place that could cover what you need? Have you checked the standard SBA 7(a) loan or non-SBA loan options? Do you have insurance in place that might cover some losses such as a business interruption policy? Would you be able to meet applicable forgiveness requirements or, if not, be able to repay? This isn’t an exhaustive list of questions; there may be more to your particular analysis.
  • If you do apply for a loan and receive it, it doesn’t mean you have to accept it.
  • If you do intend to accept a loan, read the terms. Yes, actually read a legally-binding document before you sign it. It’s easy to think right now, “well, I need the money, so I’ll sign whatever,” but a year from now you may be wishing you had read the fine print and shopped around for alternatives.
  • I’m seeing a LOT of discussion about the merits of the Paycheck Protection Program Loan (PPP) vs the Economic Injury Disaster Loans (EIDL). Being discussed: which is more advantageous depending on various financial situations, conflicting opinions on whether or not they are mutually exclusive, conflicting opinions on whether 1099 payments count as wages for the PPP, the merits of the PPP loan’s potential to be forgiven, will banks follow the Treasury Department’s guidance or SBA’s guidance where they don’t quite match up, etc. If you are debating between these two options, don’t DIY this. Have a qualified, disinterested third-party who is keeping up with the daily changes and guidance help you run the numbers.
  • The EIDL has a small, quick grant component – the Emergency Economic Injury Grant (EEIG). This is a $10,000 tax-free grant that is an advance of the EIDL, if received. If you apply for the EIDL/EEIG combo and are later turned down for the EIDL, there’s no need to repay the $10,000 EEIG. You can apply on the SBA’s website here. Caveat that the $10,000 grant does reduce your loan forgiveness by that amount if you end up in a PPP loan that is later forgiven. (As of this writing, the EIDL does not have a loan forgiveness component.)
  • If your business is experiencing hardship, but you’re not interested in a loan, the federal payroll tax deferral or the Employee Retention Credit (a payroll tax credit) might interest you if you have employees.

Remember, this discussion doesn’t cover the entire CARES Act. If you have any questions or concerns about your particular situation, please reach out. In the meantime, stay tuned! There could be more relief programs to come or revisions to those now in place. I will keep you posted as meaningful updates become available.