Business Provisions of the CARES Act
By: Amy Troiano
On March 25th the Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide further relief for individual and business taxpayers impacted by the COVID-19. The House voted on March 27 to pass the legislation. The following is a summary of the business tax provisions included in the CARES Act.
- Employee Retention Credit for Employers Subject to Closure due to COVID-19 – provides a refundable payroll tax credit applicable to the employer’s share of payroll taxes of 50% of qualified wages paid to employees. The amount of qualified wages may not exceed $10,000 per employee. The credit is available to employers whose (1) operations were fully or partially suspended due to a COVID-19 related shut down order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. There are special rules for small employers.
- Delay of Payment of Employer Payroll Taxes – allows employers to delay remittance of their share of Social Security tax on employees’ wages that would have been deposited between the date of the CARES Act enactment and December 31, 2020. The deferred tax must be paid over the following two years, with 50% of the amount required to be paid by December 31, 2021 and the other 50% by December 31, 2022. A similar deferral is available for self-employed individuals.
- Modifications for Net Operating Losses – losses from 2018, 2019 and 2020 will be permitted to be carried back for up to five years. Losses carried forward to 2019 and 2020 will be permitted to offset 100% of taxable income as opposed to 80% under TCJA. This applies to all taxpayers.
- Modification of Limitation on Losses for Taxpayers Other than Corporations – temporarily and retroactively removes the limitation on the use of excess business losses to offset non-business income of non-corporate taxpayers. This is retroactive for tax years beginning after December 31, 2017, and the limitations go back into effect for any tax year beginning after December 31, 2020.
- Modification of Credit for Prior Year Minimum Tax Liability for Corporations – accelerates the recovery of refundable AMT credits, originally intended to be made available over several years.
- Modifications of limitation on business interest – temporarily modifies the 30% of adjusted taxable income limitation to 50% of adjusted taxable income for 2019 and 2020. In addition, taxpayers can elect to calculate the interest limitation for 2020 using their 2019 adjusted taxable income.
- Technical amendments regarding qualified improvement property – highly anticipated technical correction to the TCJA to give qualified improvement property a 15-year life allowing taxpayers to apply accelerated bonus depreciation rules to them. This amendment is retroactive to the TCJA’s enactment January 1, 2018.
- Temporary exception from excise tax for alcohol used to produce hand sanitizer – waives the federal excise tax on distilled spirits used for or contained in hand sanitizer that is produced and distributed in accordance with U.S. Food & Drug Administration guidance during 2020.
- Modification of limitations on charitable contributions during 2020 – temporarily increases the 10% limitation on charitable contributions deductions to 25% of taxable income for corporations.
It is important to note that several of these provisions can be applied retroactively, meaning that amended returns can be filed. We will keep you informed of any changes as they come about. Please contact your Maloney + Novotny advisor for additional information and advice regarding the CARES Act, or send us a message online here.