Coronavirus CARES Act
Tax and Financial Implications for Businesses and Individuals
On March 27, 2020, the President signed a $2.2 Trillion bill to help support the economy during this crisis. This is a general summary of the provisions that affect most taxpayers (individuals and businesses). As is the case with much of the legislation coming out over the last couple of weeks, many of the specifics about how these new rules will be implemented are yet to be finalized and released. We will do our best to answer questions you may have and will continue to keep you informed as more information becomes available.
Recovery Rebates - $1,200 for each adult and $500 for each child. Checks will be mailed within the next 3 weeks. These amounts phase out starting at income of $75,000 for single filers and $150,000 for joint filers.
Retirement Plans – For those who test positive for COVID-19 or experience adverse financial consequences as a result of COVID-19, there is a waiver of the 10 percent penalty for early withdrawal from a retirement plan up to $100,000. Additionally, the amount withdrawn can be recontributed within three years. If not recontributed within 3 years, then tax would be owed on the distribution over a 3-year period beginning in 2020.
Required Minimum Distributions – For 2020, all required minimum distributions from retirement plans are waived.
Charitable Contributions – Allows taxpayers for 2020 to deduct charitable contributions up to $300 even if the taxpayer does not itemize deductions. Additionally, the limitation on charitable contributions was removed for individuals for 2020 and was increased to 25% for corporations. Contributions to supporting organizations or donor advised funds are not eligible for these expanded deductions.
Student Loans Paid by Employers – Individuals can exclude from income up to $5,250 from certain payments made by an employer for the employee’s education loans.
Employee Retention Credit – Businesses can get a credit against employment taxes equal to 50 percent of qualified wages (up to $10,000 per employee) paid to employees under certain circumstances. The specific rules surrounding this are quite complex. This applies to wages paid after March 12, 2020 and before January 1, 2021. This is separate from and in addition to the Paid Sick Leave and Expanded Family Medical Leave provided for under the Families First Coronavirus Response Act.
Retirement Plan Contributions – Required employer contributions for single-employer qualified retirement plans for 2020 can be delayed until 2021.
Payroll Tax Deferral – Beginning March 27, 2020 and ending on December 31, 2020, the employer share of social security taxes (6.2%) is deferred. Half of the deferred payroll taxes are due on December 31, 2021 and the other half are due on December 31, 2022.
Net Operating Losses – Net operating losses arising in 2018, 2019, or 2020 can be carried back five years. Also, net operating losses arising before January 1, 2021 are not limited to 80 percent of taxable income.
Excess Business Losses – For 2018, 2019, and 2020 the excess business loss limitation for business losses on an individual’s income tax return over $500,000 has been suspended.
Business Interest Expense Limitation – Business interest expense limitation is increased to 50 percent of adjusted taxable income for 2019 and 2020. For 2020, the taxpayer may elect to use adjusted taxable income for 2019 as it may result in a higher deduction. This change may result in an amended return for 2019 for affected taxpayers.
Qualified Improvement Property – Qualified improvement property is classified as 15-year property and as such can be fully deducted in the year incurred. This change is retroactive, so 2018 and 2019 returns can be amended to take advantage of the shorter life.
Alternative Minimum Tax Credit Carryovers – Corporations can utilize any remaining AMT credit carryovers in full in the first taxable year beginning after 2018.
Should you have any questions about how these changes may affect you, our team at Eder, Casella & Co. is here to help.