Below is a summarized description of the key tax measures:
Recovery Rebates
CARES provides for payments to taxpayers — “recovery rebates” — which are being treated as advance refunds of a 2020 tax credit. Under this provision, individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals. The reduction will be 5% of the amount that the taxpayer’s AGI exceeds the aforementioned thresholds. Therefore, a single taxpayer with no children would not receive an advanced payment if their AGI exceeded $99,000 (calculated – $1,200 -5%*($99,0000 – $75,000). Likewise, joint filers with no children would receive no credit if their AGI exceeded $198,000.
The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive.
Employee Retention Credit
CARES creates an employee retention credit for employers that were negatively impacted due to the coronavirus pandemic.
Applies to companies that, during any calendar quarter,
Wages eligible for the credit depend on the size of the company, but eligible wages do not include wages paid under the Emergency Paid Sick Leave Act or Emergency Family Medical Leave Expansion Act.
employees during the above affected periods.
The amount of credit is equal to 50% of the qualifying wages paid to the employee after March 12, 2020 and before January 31, 2021, not to exceed $10,000
The eligible credit is a credit against the payroll taxes to be remitted by the employer. If the credit is larger than the payroll taxes, the excess amount will be refunded.
Employers that receive a Small Business Interruption Loan are not eligible for this credit.
Delay in Payment of Employer Portion of FICA Taxes
CARES provides a deferral in the timing to deposit the employer portion of payroll taxes. Businesses would not be required to deposit the employer share of FICA taxes (6.2% portion) from the date of enactment until December 31, 2020. However, 50% of the amount deferred would be required to be deposited on December 31, 2021, with the remaining 50% deposited on December 31, 2022. The business must still deposit the employer’s share of the hospital insurance tax (1.45% portion) as well as all of the employee’s share of the payroll taxes withheld. Any taxpayer that has loans forgiven under CARES is not eligible for this deferral.
Retirement Plans
Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to the 10% additional tax for early distributions. Eligible distributions can be taken up to December 31, 2020. Coronavirus-related distributions may be repaid within three years. For these purposes, an eligible taxpayer is one who has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or whose spouse or dependent has been diagnosed with SARS-CoV-2 virus or COVID-19 disease or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who has had his or her work hours reduced, or who is unable to work due to lack of child care. Any resulting income inclusion can be taken over three years. CARES also allows loans of up to $100,000 from qualified plans, delays the repayment of plan loans due between date of enactment and December 31, 2020 by one year, with a corresponding adjustment to subsequent repayments.
CARES temporarily suspends the required minimum distribution rules for 2020.
CARES delays 2020 minimum required contributions for single-employer plans until 2021.
Charitable Contributions
CARES creates an above-the-line charitable deduction for 2020 (not to exceed $300). CARES also temporarily suspends the adjusted gross income (AGI) limitations on charitable contributions for 2020, to 100% of AGI for individuals. In essence, if all of an individual’s contributions are qualifying they will be able to deduct the full amount of these contributions up to AGI. Charitable contributions for corporations will be limited to 25% (was previously 10%) of taxable income.
Net Operating Losses
CARES relaxes many of the limitations on a business’s or an individual’s ability to utilize net operating losses (NOL) that were in place because of the Tax Cuts and Jobs Act of 2017 (TCJA). For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback). For taxable years beginning after December 31, 2020 the NOL deduction would be the NOL from years beginning prior to January 1, 2018, plus the lesser of 1) the NOL carried over from years beginning after December 31, 2017, or 2) 80% of the taxable income.
Corporate Alternative Minimum Tax
With the TCJA’s repeal of alternative minimum tax (AMT), many businesses had AMT credit carryovers that were being refunded subject to an annual calculation beginning in 2018. CARES has eliminated this calculation beginning for taxable years beginning after December 31, 2017, thus making the amount of AMT carryovers completely refundable on the businesses 2018 or 2019 tax return.
Business Interest Expense Deduction Limitation
For tax years beginning in 2019 and 2020, the business interest expense limitation is modified by CARES as follows:
Bonus Depreciation on Qualified Improvement Property
CARES fixes a drafting error in the TCJA, by allowing a 100% write-off of qualified improvement property by using the bonus depreciation provisions. This amendment is retroactive to property placed in service after December 31, 2017, which could allow businesses to receive refunds by amending their 2017, 2018 or 2019 (if filed) returns to deduct the cost of qualified improvement property.