CARES Act: Tax Provisions for Your Business and Your Life

As of March 27th, Congress has passed H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act is now on its way to President Trump’s desk to be signed into law. The CARES Act includes a number of significant tax provisions for both your business and your life.


Businesses

Deferral of payroll taxes. Employers and self-employed individuals can defer payment of the employer share of the social security tax payable during the remainder of 2020. Deferred amounts must be repaid over the course of the next two years, with fifty-percent due December 31, 2021 and the balance due December 31, 2022.

Retention payroll tax credit. Eligible employers will be entitled to a payroll tax credit equal to 50% of certain wages paid to employees, up to a limit of $10,000 per employee. An eligible employer is one that carries on a trade or business during calendar year 2020 and whose (a) operations were fully or partially suspended due to the COVID-19 crisis or (b) gross receipts declined by more than 50% compared to the same quarter 2019.

Qualifying wages include:

  • For a an employer with more than 100 full-time employees, wages paid to employees when they are not working due to COVID-19 related circumstances and
  • For an employer with 100 or fewer full-time employees, all wages.

Relaxing of Tax Cuts and Jobs Act 2017 (“TCJA”) losses and credits rules:

  • The “excess business loss limitation” of Section 461(l) of the Code is rolled back for tax years beginning prior to January 1, 2020. An excess business loss is the amount by which the total deductions attributable to all of a taxpayer’s trades or businesses exceeds their total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint return). Taxpayers may benefit from filing amended returns for 2018 and 2019 (to the extent already filed).
  • NOLs arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back five years. As a result, NOLs generated during 2018 through 2020 may now be used to offset pre-2018 income, potentially creating a refund situation.
  • The TCJA’s eighty-percent of taxable income NOL limitation is rolled back for tax years beginning before January 1, 2021.
  • Corporations with remaining pre-TCJA “minimum tax credits” can now access the remaining balance in an accelerated fashion.

Business interest expense limitation. For businesses subject to the interest expense limitation under Section 163(j) of the Code (those with average annual gross receipts in excess of $25 million), the limitation has been temporarily relaxed for tax years beginning after December 31, 2018 and prior to January 1, 2021 to allow taxpayers to deduct a larger portion of their interest expense in each year.


Individuals

Recovery rebate checks. U.S. resident individuals with adjusted gross income up to $75,000 ($150,000 joint return), may be eligible for a $1,200 rebate ($2,400 joint return), plus an additional $500 for each qualifying child. The recovery rebate is subject to a phase-out equal to five-percent of the amount of any adjusted gross income in excess of the $75,000 ($150,000 joint return) thresholds. For example, a couple filing a joint return reporting $160,000 of adjusted gross income and no children will be entitled to $1,900 rather than the full $2,400.

For most, no action is required in order to receive a rebate check. The IRS will use taxpayers’ 2019 or 2018 (if 2019 is not yet filed) tax return information. If a taxpayer has not filed either year, the IRS may use other available information from Social Security Administration or IRS systems.

Charitable deductions. Taxpayers who do not itemize are entitled to a $300 above the line deduction for charitable contributions. Taxpayers who itemize may claim a deduction up to one hundred-percent of their adjusted gross income. Only contributions to public charities or equivalent organizations are eligible for these enhanced charitable deduction allowances.

Student loan repayment. Employers may pay up to $5,250 toward an employee’s student loans before January 1, 2021 without such payment being included in the employee’s income.

Retirement account withdrawal penalties. The 10% penalty for early withdrawals from certain retirement accounts is waived for “coronavirus-related” withdrawals up to $100,000. Coronavirus-related withdrawals include those made to an individual:

  • Diagnosed with COVID-19,
  • Whose spouse or dependent is diagnosed with COVID-19, or
  • Whom experiences an adverse financial impact due to COVID-19 related circumstances.

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