The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, was a comprehensive federal stimulus package designed to address the economic fallout from the COVID-19 pandemic. The provisions made by the CARES Act were temporary and have expired at this time.
How did the CARES Act affect individuals?
💵 Economic Impact Payments (EIPs)
Between 2020 and 2021, the federal government issued three rounds of stimulus payments to eligible individuals. Taxpayers who did not receive the full amount they were entitled to could claim the Recovery Rebate Credit on their 2020 or 2021 tax returns.
🧾 Unemployment Compensation
In 2020, the CARES Act allowed for the exclusion of up to $10,200 in unemployment benefits from taxable income for qualifying taxpayers. This exclusion applied only to the 2020 tax year and is no longer in effect.
🏦 Retirement Plan Withdrawals
The Act permitted penalty-free withdrawals of up to $100,000 from retirement accounts for individuals affected by COVID-19. Taxpayers had the option to spread the income over three years or repay the withdrawn amount to avoid taxation.
❤️ Charitable Contributions
To encourage charitable giving, the CARES Act introduced a temporary above-the-line deduction of $300 for individuals and $600 for joint filers in 2021. It also raised the limit on cash contributions for itemizers, allowing deductions up to 100% of adjusted gross income (AGI).
How did the CARES Act affect businesses?
👥 Employee Retention Credit (ERC)
The ERC was a refundable payroll tax credit available to eligible employers who retained employees during the pandemic. Although the credit ended in Q3 2021, businesses can still claim it retroactively by filing amended payroll tax returns using Form 941-X.
💼 Paycheck Protection Program (PPP)
The PPP provided forgivable loans to small businesses to help cover payroll and essential operating expenses. Importantly, forgiven PPP loans are not considered taxable income, and the related expenses remain deductible.
📉 Net Operating Loss (NOL) Carrybacks
The CARES Act allowed businesses to carry back net operating losses from 2018, 2019, and 2020 for up to five years. This provision enabled businesses to apply losses to prior profitable years and claim refunds.