For medical providers that have been, and are being, affected financially by the Coronavirus (COVID-19) pandemic, much-needed relief has arrived.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). This $2.2 trillion stimulus package is providing aid for individuals, states, small businesses and businesses impacted by COVID-19.
The CARES Act offers loan forgiveness options and a 10-year possible payback period, among other benefits, to medical providers of all types that face distress due to Coronavirus, including:
- Ambulatory surgery centers
- Home health agencies
- Behavioral therapists
- Day spa
- Massage therapists
Health care providers already are in the midst of facing COVID-19 head-on, and, at the same time, enduring a myriad of compliance and regulatory changes. The CARES Act is a crucial effort to make sure financial assistance is there as well.
If you’re a medical provider, the health care lawyers Chapman Law Group encourage you to take advantage of this much-needed stimulus immediately.
How the CARES Act Works
The National Law review outlined the key provisions as follows:
Specifics of CARES Act and Implications for Businesses and Individuals
The Coronavirus Aid, Relief, and Economic Security Act or the CARES Act … includes significant provisions that affect American citizens personally and professionally. Importantly, the CARES Act is a stimulus bill that releases over $330 billion in federal funding to help maintain and/or boost the economy by supporting American institutions, including national businesses, large and small.
Particular highlights of the package include:
Tax Provisions for Businesses
- Allows employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before Jan. 1, 2021.
- Provides a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose 1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or 2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020.
- Allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.
- Provides that a net operating loss, or NOL, arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.
- Modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.
- Temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.
- Enables businesses, especially in the hospitality and restaurant industry, to write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.
- Provides for temporary exception from excise tax for alcohol used to produce hand sanitizer. The provision waives the federal excise tax on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020.
- Creates a temporary program through December 31, 2020, to provide payment to those not traditionally eligible for unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the Coronavirus public health emergency.
- Provides payment to states to reimburse nonprofits, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020, to pay unemployment benefits.
- Provides an additional $600-per-week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
- Provides funding to pay the cost of the first week of unemployment benefits through December 31, 2020, for states that choose to pay recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.
- Provides an additional 13 weeks of unemployment benefits through December 31, 2020, to help those who remain unemployed after weeks of state unemployment benefits are no longer available.
- Pays 100% of employer’s costs of providing short-time compensation through December 31, 2020, where employers reduce employee hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit. Pays for 50% of the costs that a state incurs in providing short-time compensation through December 31, 2020.
Tax Provisions for Individuals
- All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible Social Security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.
- Allows charitable deductions of up to $300 to churches and charitable organizations in 2020, regardless of whether contributors itemize their deductions or not.
- Increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50% of adjusted gross income limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25%.
Retirement Plan Withdrawals
- Waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief. A coronavirus-related distribution is a one made to an individual: 1) who is diagnosed with COVID-19; 2) whose spouse or dependent is diagnosed with COVID-19; or 3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.
- Waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
Reach Out to the Experts
Your CPA, SBA-certified lender or financial consultant can offer specific guidance as to how the CARES Act will apply to your health care business.
If you have questions about whether your practice is staying compliant and following regulatory protocol during the COVID-19 pandemic, we at Chapman Law Group are here to help. Our health care attorneys in compliance and regulatory matters will work to keep you informed on new Coronavirus-related developments that affect your business. Contact us today.