President Trump signed into law today H.R. 748, the Coronavirus Aid, Relief and Economic Security Act (CARES Act). This is the third major piece of legislation enacted in response to the COVID-19 pandemic since March 6, 2020. The focus of the $2 trillion package is supporting American workers and businesses while providing resources to the health care community serving the public during this unprecedented time.
Some provisions in the CARES Act have refund opportunities for prior tax years, while others apply on a forward-looking basis. Many provisions provide immediate liquidity during the pandemic crisis.
We will be writing about the CARES Act in detail in the coming days and weeks. Until then, some highlights of the CARES Act include:
- Paycheck Protection Program – Provides loans for certain business expenses including payroll costs and rent to allow businesses to continue operating. The loans must be used for covered expenses and may be eligible for forgiveness dependent upon how used and the levels of employment maintained during the crisis.
- Employee Retention Tax Credit - Eligible employers, those where closures or significant sales disruption has occurred due to the COVID-19 pandemic, may receive a credit for 50% of “qualified wages” up to $10,000. These credits must be reduced by any credits received under the Families First Coronavirus Response Act.
- Deferral of Payroll Taxes – Employer’s may defer the employer portion of Social Security taxes on employee wages for wages paid between the date of enactment and December 31, 2020. The taxes would be paid in two installments: (1) 50% December 31, 2021 with the remaining balance on (2) December 31, 2022. Major payroll tax providers are already responding to this and will likely communicate as soon as this option is available.
- Pandemic Unemployment Assistance - Substantially expands unemployment compensation to cover those who would not regularly qualify who cannot work because of the COVID-19 public health emergency. The Assistance will be state administered but fully federally funded and is effective through December 31, 2020
- Emergency Increase in Unemployment Compensation – Increases available unemployment benefits by $600 a week for up to four months through July 31, 2020.
- 2020 Recovery Rebates for Individuals – Eligible taxpayers will receive rebate checks. See if you will qualify here.
- Special Rules for Retirement Funds – Required minimum distributions from defined contribution plans and individual retirement accounts are temporarily waived for 2020. In addition, for those experiencing adverse financial consequences from COVID-19, the 10% early withdrawal penalty is waived for distributions up to $100,000 and options exist to repay the distribution and/or the associated tax on the distribution.
- Charitable Contribution Expansion – To incentivize cash charitable contributions during this unprecedented time, two items were added for individuals:
-If you take the standard deduction, a $300 above-the-line deduction was added
-If you itemize your deductions, the usual 60% of AGI limitation was removed
- Net Operating Loss (NOL) Relaxation/Expansion – Changes brought about by the Tax Cuts and Jobs Act have been relaxed and the “old” NOL rules expanded. NOLs generated from 2018 through 2020 will qualify for a 5-year carryback and the 80% of taxable income limitation was removed.
- Relaxation of Business Interest Limitations – The Tax Cuts and Jobs Act initiated an overall business interest limitation of 30% of a taxpayer's adjusted taxable income. The CARES Act increases the limitation to 50% of adjusted taxable income and offers an interesting option for 2020: you can use the higher of your 2019 or 2020 adjusted taxable income to do the computation. The result, businesses may deduct more interest than before the CARES Act was signed.
- Suspension of Excess Business Loss Limitation – The Tax Cuts and Jobs Act introduced a new $500,000 limitation on deductible business losses ($250,000 for any other filing status). The CARES Act suspends this limitation for tax years 2018 through 2020.
- Qualified Improvement Property Fix – Many taxpayers have felt the pain of Congress’ mistake in the Tax Cuts and Jobs Act that left many businesses thinking they could deduct 100% of the improvements they were making to the interior of their buildings only to have their tax professional tell them they could not. Congress has made up for it via the CARES Act by correcting the error retroactive back to 2018.
- Charitable Contribution Expansion – The usual 15% of AGI limitation applicable to corporations was increased to 25%
Continue to visit our COVID-19 Tax Resource Center for up-to-date information on how the outbreak may affect your tax filing, payments, and planning. We encourage you to share the page with other business owners. Through this unprecedented series of events, you can count on The Tax Warriors® at Drucker & Scaccetti to help. Call on us for assistance.