Article Posted on 03/27/2020
By a unanimous vote on March 25th, the Senate passed a third coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). At the time of posting this article, the House has not passed this act, and the President has not signed into law. Below is some information the tax relief provisions would provide for businesses.
Employee retention credit for employers
- This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
- The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
- The credit is not available to employers receiving Small Business Interruption Loans.
- For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers' closure or reduced gross receipts are eligible for the credit.
- The term "wages" includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.
- Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act, nor for wages taken into account for the employer credit for paid family and medical leave.
- Effective date. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.
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.
- Payment on social security taxes and self-employment taxes can be delayed with 50% being paid by December 31, 2021 and the remaining 50% being paid by December 31, 2022.
- The ''payroll tax deferral period'' means the period beginning on the date of enactment of the Act and ending before January 1, 2021.
- Effective date beginning on the date of enactment of the Act.
Temporary repeal of taxable income limitation for net operating losses (NOLs)
- The CARES Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. This reverses the 80% limit imposed by the Tax Cuts and Jobs Act of 2017.
- Effective date applies to tax years beginning after Dec. 31, 2017, and to tax years beginning on or before Dec. 31, 2017, to which NOLs arising in tax years beginning after Dec. 31, 2017 are carried.
Modification of rules relating to net operating loss (NOL) carrybacks
- The CARES Act provides that NOLs arising in a tax year beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. This reverses the no-carryback rule imposed by the Tax Cuts and Jobs Act of 2017.
- Effective date applies to NOLs arising in tax years beginning after Dec. 31, 2017 and to tax years beginning before, on or after such date to which such NOLs are carried.
Modification of limitation on losses for noncorporate taxpayers
- The CARES Act temporarily modifies the loss limitation for noncorporate taxpayers so they can deduct excess business losses arising in 2018, 2019, and 2020. This reverses the loss limitations of $250,000 for singles and $500,000 for joint filers imposed by the Tax Cuts and Jobs Act of 2017.
- Effective date applies to tax years beginning after December 31, 2017.
Deductibility of interest expense temporarily increased
- The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense from 30% of adjusted taxable income to 50% of adjusted taxable income for tax years beginning in 2019 and 2020.
- Effective date applies to tax years beginning after December 31, 2018.
Bonus depreciation technical correction for qualified improvement property
- The CARES Act provides a technical correction to the Tax Cuts and Jobs Act of 2017, and specifically designates qualified improvement (QI) property as 15-year property for depreciation purposes. This makes QI Property a category eligible for 100% Bonus Depreciation. QI property also is specifically assigned a 20-year class life for the Alternative Depreciation System.
- Effective date applies for property placed in service after December 31, 2017.
- The 2018 tax returns can be amended for qualified improvements purchased in 2018.