This is challenging time for our Country, but remember we are all in this together. We are always here for you, so please do not hesitate to reach out to us for any tax questions. We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19.
Please see below for tax-related provisions in the CARES Act, a $2 trillion dollar bill signed into law last Friday, March 27, 2020.
Individual Tax Provisions
Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. Additional $500 payment will be sent to taxpayers for each qualifying child dependent under age 17
The IRS indicated it would provide a web-based portal in the coming weeks for taxpayers to provide direct deposit information for the $1200 rebate if they didn’t provide it on either their 2018 or 2019 tax return. This portal is not yet available. As you well know, scammers will like to take advantage of this opportunity, so be careful of various phishing scams that are out there
IRS also indicated that those who normally aren’t required to file taxes will need to file a ‘simple tax return’ in order to get the stimulus payment. The simple tax return form is not available yet. We will provide you with more information as soon as the simple tax return form is made available by IRS.
Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.
Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the
Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA.
Net Operating Loss Deductions. The time necessary to take advantage of an NOL carryback will depend on whether the NOL arises in 2018, 2019 or 2020. For 2018 NOLs, presumably the 2018 return has already been filed. Individual taxpayers may request a refund for the year to which the 2018 NOL is carried back by either filing an amended return (Form 1040X or form 1045 for individual taxpayers. The CARES Act, however, repeals the excess business loss limitation for taxable years beginning before January 1, 2021. Thus, noncorporate taxpayers with business losses arising in 2018, 2019, and 2020 can enjoy the five-year carryback without regard to the excess business loss rules.
Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.
Above the Line Charitable Deduction. Individuals will now be able to claim a $300 above-the-line deduction for cash contributions made in 2020.
Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.
Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription, and amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
Deferral of Individual taxpayer loss limits. The CARES Act retroactively turns off the excess active business loss limitation rule by deferring its effective date to tax years beginning after December 31, 2020 Under the previous tax law, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed and were treated as NOL carryforwards in the following tax year.
Business Tax Provisions
Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security payroll tax for 50% of certain wages (below) paid to employees during the COVID-19 crisis.
The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter. Please reach out to us if you need more details regarding the Employee retention credit for employers.
The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.
Delayed Payment of Employer Payroll Taxes. Taxpayers (including self-employed) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security.
The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employed, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).
Net Operating Loss Deductions. Beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying carryback prohibition until 2021.
The CARES Act also temporarily relaxes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.
Acceleration of Corporate AMT Liability Credit. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.
Relaxation of business interest deduction limit. The CARES Act allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of Adjusted Taxable Income (ATI) for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation.
Charitable Deduction liberalization. The limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (adjusted) taxable income.
Faster write-offs for interior building improvements. The CARES Act makes retroactively treatments for interior building improvements (qualified improvement property (QIP)) eligible for bonus deprecation or for treatment as 15-year MACRS property It also restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.
Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.
Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021.
Certain SBA loan debt (PPP Loan) forgiveness isn’t taxable. Amounts of Small Business Administration guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. Any loan forgiveness is not to exceed the loan principal. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.
Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premise for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.
Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise, tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.
Please do not hesitate to reach out to us at 215-343-7730