The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law on March 27, 2020. CARES temporarily affected 2018, 2019, and 2020 taxes by overriding elements of the 2017 Tax Cuts and Jobs Act (TCJA). For example, CARES provided five-year NOL carryback refund claims, whereas TCJA allowed NOL carryforwards only. CARES also waived TCJA’s excess business limitation. These changes are temporary; TCJA applies again in 2021.

The CARES Act provides tax relief and economic aid to employees, independent contractors, sole proprietors, and other small businesses. However, traders don’t fit into the usual small-business categories, so there are issues in applying for some CARES aid.

Traders eligible for trader tax status (TTS) operating in an S-Corp might be able to receive state and federal unemployment benefits. TTS S-Corps do not qualify for a forgivable loan under the Small Business Administration Paycheck Protection Program because trading is a “speculative business.” TTS traders structured as sole proprietors, partnerships, or S-Corps might be eligible for CARES five-year NOL carrybacks, relaxed retirement plan distributions, and recovery rebates.

A trader’s capital gains and Section 475 ordinary income are different from wages, earned income, and self-employment income (SEI) required for many business-related benefits under CARES. TTS sole proprietors report business expenses on Schedule C. Still, trading gains and losses go on other tax forms, including Schedule D (capital gains and losses) or Form 4797 (Section 475 ordinary gain or loss). In government agencies’ eyes, trading generates investment income derived from the sale of capital assets; it’s not a usual small business with revenue.

CARES allows NOL carrybacks

As discussed in Chapter 17, TCJA repealed two-year NOL carrybacks and only allowed NOL carryforwards limited to 80% of the subsequent year’s taxable income starting in tax-year 2018. TCJA introduced the “excess business loss” (EBL) limitation, where aggregate business losses over an EBL threshold ($500,000 for married and $250,000 for other taxpayers for 2018) are considered an NOL carryforward.

CARES suspended this limitation for 2018, 2019, and 2020 and permitted five-year NOL carrybacks for 2018, 2019, and 2020 NOLs.

Business owners should consider amending 2018 and 2019 tax returns to remove EBL limitations and consider a five-year NOL carryback refund claim. It’s too late to elect 475 ordinary loss treatment for 2018 and 2019; 2020 NOL carrybacks must wait until 2021.

Retirement plan distributions

Taxpayers negatively impacted by Covid-19 can take a withdrawal from an IRA or qualified retirement plan of up to a maximum of $100,000 in 2020 and be exempt from the 10% excise tax on “early withdrawals.” The taxpayer has the option of returning (rolling over) the funds within three years or paying income taxes on the 2020 distribution over three years. CARES also suspended required minimum distributions for 2020. (See this May 4, 2020 update on the IRS Website,

Charitable deductions

CARES created an above-the-line charitable deduction for 2020 (not to exceed $300). It also modified the AGI limitations on charitable contributions for 2020 to 100% of AGI for individuals (raised from 60% in TCJA).

Unemployment benefits

CARES provided Federal Pandemic Unemployment Compensation (see U.S. Department of Labor’s news release, CARES also gave states the option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible for unemployment benefits. Unemployment Insurance Relief During Covid-19 Outbreak ( lists contact information for state unemployment insurance offices.

TTS sole proprietor and partnership traders will likely face challenges applying for SUI and FPUC because they didn’t pay for SUI premiums. They also don’t have self-employment income as sole proprietors and partners. Most TTS traders worked from a home office and continued to trade throughout the coronavirus crisis. An employer or client has not terminated or furloughed them during the crisis. If you think you might be eligible for SUI and FPUC, apply at your state unemployment office.

SBA PPP forgivable loans

According to the AICPA, “The CARES Act established the PPP as a new 7(a) loan option overseen by the Treasury Department and backed by the SBA [Small Business Administration], which is authorized to provide a 100% guarantee to lenders on loans issued under the program. The full principal amount of the loans may qualify for loan forgiveness if the borrower maintains or rehires staff and maintains compensation levels. However, not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs. Independent contractors and self-employed individuals can apply for PPP loans beginning April 10. Under the PPP, the maximum loan amount is the lesser of $10 million or calculated using a payroll-based formula specified in the CARES Act.” You can access free loan calculators here: (See Paycheck Protection Program information here:

The SBA considers a TTS trading business to be a “speculative business,” which is not eligible for an SBA loan. The list of speculative businesses includes “dealing in stocks, bonds, commodity futures, and other financial instruments.”

Recovery rebates

Under a threshold for adjusted gross income (AGI), taxpayers are eligible for an advance tax refund of a 2020 tax credit. (The payment is reduced if the taxpayer falls in a phase-out range above the threshold.) The IRS looks at the taxpayer’s 2018 or 2019 tax return filing to deposit to a taxpayer’s bank account or mail a check faster. (For social security recipients who don’t file a tax return, the IRS looks at their SSA Form 1099.)

2020 estimated taxes

Treasury also postponed Q1 and Q2 quarterly estimated tax payments for 2020 until July 15, 2020. The third and fourth quarters keep their original due dates of Sept. 15, 2020, and Jan. 15, 2021, respectively.

2020 Year-End $900 billion pandemic relief

On Dec. 21, 2020, Congress passed an emergency $900 billion pandemic relief bill, extending CARES to people in need. On Dec. 27, 2020, the President signed the legislation, part of a government funding package. The new Covid-19 legislation includes:

Direct payments: The maximum amount is $600 for individuals and $1,200 for married couples filing jointly, plus an additional $600 per qualifying child. Subject to phase out for individuals making more than $75,000 modified adjusted gross income and married couples over $150,000. It’s a 2020 advanced recovery rebate with eligibility based on 2019 tax returns. These direct payments are non-taxable income.

Extension of federal pandemic unemployment compensation: Restores FPUC supplement to all state and federal unemployment benefits at $300 per week, starting after Dec. 26, 2020, and ending March 14, 2021. These unemployment benefits are taxable income.

Small business PPP forgivable loans: The new legislation clarifies tax treatment under the CARES Act. Borrowers may deduct PPP business expenses financed with PPP loans, and loan forgiveness is not taxable income. New funding allows “PPP second-draw” loans for smaller and harder-hit businesses, with a maximum of $2 million.

Business meals tax deduction raised to 100% through 2022, increased from 50%. Traders don’t have many business meals.

TTS traders might qualify for direct payments but not unemployment benefits since they don’t have earned income from trading. The SBA labels trading a speculative business precluding it from SBA loans, including PPP loans.

Full details have yet to be released, so stay tuned to our blog to see how this impacts TTS traders. Also, see

Excerpt from Green’s Trader Tax Guide Chapter 18 CARES Act.