On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act “CARES Act”. This sweeping piece of legislation is meant to provide about $2 trillion in economic stimulus to individuals, business and states in response to the effects of COVID-19. Included in the legislation are certain tax provisions for both individuals and business.
The provisions include a one-time stimulus payment, waiver of RMD for 2020, changes to net operating loss rules and a technical correction for qualified improvement property.
Individual Recovery Rebate/Credit
Payments to individuals of $1,200, or $2,400 for couples, there will be an additional payment of $500 for each dependent child of the taxpayer(s). Individuals with adjusted gross income in excess of $75,000 (or $150,000 for couples) will see a reduction in the payment. If a taxpayers adjusted gross income is above $99,000 (or $198,000 for couples) no payment will be received.
Waiver of 10% Tax on Retirement Distributions
An individual who is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the CDC, whose spouse or dependent is diagnosed, or experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off, working reduced hours or unable to work due to child care can take a retirement distribution up to $100,000 without the 10% additional tax. The distribution can be included in income over three years. Also, the distribution can be contributed back into the retirement plan within three years.
RMD Requirement waived for 2020
RMD requirements do not apply for the calendar year 2020. An individual will not need to take a distribution from a retirement account.
$300 Charitable Deduction
For tax years starting with 2020, individuals who do not itemize will be allowed an additional deduction of $300 for cash contributed to a qualified charity.
Limitations on Individual Cash Charitable Contributions
For tax years starting with 2020, the 60% of adjusted gross income limit for qualified cash contributions made by individuals will not apply. Qualified cash contributions do not include contributions to a supporting organization under 509(a)(3) or to a donor advised fund.
Employee Retention Credit
For employers whose operations have been fully or partially suspended as a result of a government order or for employers who have experienced a greater than 50% reduction in quarterly receipts a refundable payroll tax credit for 50% of wages paid is available. The wages must be paid after March 12, 2020 and before January 1, 2021 and is capped at the first $10,000 in wages to an eligible employee.
For employers with an average number of full-time employee in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers with greater than 100 employees in 2019, only wages of employees who are furloughed or faced reduced hours as a result of their employers’ closure or reduced gross receipts are eligible
The credit is not available to employers receiving Small Business Interruption Loans.
Delay of Payment of Employer Payroll Taxes
The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020. 50% of the deferred employer’s portion of payroll taxes will be due December 31, 2021 and 50% will be due December 31, 2022.
Please be mindful that a business cannot delay payment of their employer portion of payroll taxes under the CARES Act and participate in any of the SBA programs.
Repeal of Taxable Income Limitation for Net Operating Losses
The CARES Act temporarily removes the taxable income limitation to allow net operating losses to fully offset income. This applies to tax years beginning after December 31, 2017 to December 31, 2021.
Net Operating Loss Carrybacks
The Cares Act provides that net operating losses stemming in a tax year beginning after December 31, 2017 and before January 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. This can allow for a corporation to carryback losses to taxable years where the corporate tax rate was 35%.
Deductibility of Interest Expense
The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense from 30% to 50% from tax years beginning in 2019 and 2020.
Bonus Depreciation for Qualified Improvement Property
The CARES Act finally provides a technical correction and designates qualified improvement property as 15-year property for depreciation purposes. This now makes qualified improvement property eligible for 100% bonus depreciation. This is eligible for property placed in service after December 31, 2017.
To view other communications from the firm in relation to COVID-19, visit our blog.