COVID-19

HIGHLIGHTS OF THE CARES ACT

EMPLOYEE RETNETION CREDIT FOR EMPLOYERS

IRS FAQ: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

BENEFITS:

  • Refundable payroll tax credit for 50% of wages paid during the crisis (3/13/20 - 12/31/20)

  • Available to employers who operations have been fully or partially suspended as a result of government order limiting commerce, travel, group metings, or to employers who have expereinced a greater than 50% reduction in quarterly receipts (measured year-over-year).

  • IRS can waive applicable penalties for employers who don't deposit applicable payroll taxes in anticipation of receiving the credit.

  • Average FTE of 100 or less: all employees are eligible, whether furloughed or not.

  • After FTE of more than 100: only employees who are furloughed or face reduced hours b/c of closure or reduced gross receipts are eligible.

LIMITATIONS:

  • Not available to employers receiving Small Business Interruption Loans.

  • Not available for employees for which the employer is allowed the Work Opportunity Credit

  • "Wages" includes health benefits and is capped at the first $10,000 in wages paid after 3/12/20 and before 1/1/21.

  • "Wages" does NOT include amounts taken into account for the purpose for the payroll credits available in the Familes First Act nor wages taken into account for the §45S Family & Medical leave act credit.

DELAY PAYMENT OF EMPLOYER PAYROLL TAXES

  • 50% of the Employer portion of social security taxes (and the equivalent portion of self-employment taxes) can be deferred until 12/31/21.

  • The other 50% can be deferred until 12/31/22.

  • Effective as of 3/27/20, for payroll taxes due in 2020.

NET OPERATING LOSS CHANGES

  • Net Operating Losses generated in between 1/1/19 and 12/31/20 can now be carried back five years, giving rise to a refund.

  • Deduction for Net Operating Losses applied from other years were previously limited to 80% of taxable income. The CARES Act removed the taxable income limitation, to now allow NOLs to fully offset income.

Revenue Procedure 2020-24 provides more NOL guidance

Revenue Procedure 2020-26 gives a six-month extension on filing forms to carryback NOL

Revenue Procedure 2020-23 allows partnerships with NOLs to file amended returns

DEDUCTIBILITY OF INTEREST EXPENSE IS TEMPORARILY INCREASED

  • Tax Cuts & Jobs pass in late 2017 limits the deduction for interest paid on loans to 30% of taxable income.

  • CARES Act changes that to 50% for any tax year beginning in calendar 2019 or 2020.

  • Taxpayers can elect out of the increased limitation (such election can only be revoked by IRS consent).

  • Taxpayers can elect to caculate the interest limitation for the 2020 tax year using the taxable income for the 2019 tax year.

  • (This provision has special limitations for partnership not outlined above).

BONUS DEPRECIATION TECHNICAL CORRECTION

The qualified improvement property category now has a 15-year life which makes it eligible for 100% bonus depreciation for property placed in service after 12/31/17.

Revenue Procedure 20-25 provides more details.

CORPORATE CASH CHARITABLE CONTRIBUTIONS IN 2020

  • Normally, a corporation's charitable deduction can't exceed 10% of its taxable income. Excess is carried forward five years.

  • Limitation is now 25% for contributions,effective 1/1/20.

  • S Corporation / partnership: limitation is applied at shareholder / partner level.

INCREASED LIMITS ON CONTRIBUTIONS OF FOOD INVENTORY

  • Donations of food inventory to a charitable organization that will use it for the care of the ill, needy, or infants gets a special deduction of cost plus half the gain that would be realized on the sale of the food (not to exceed twice the basis)

  • Normally, the deduction can't exceed 15% of income, but the CARES Act increases it to 25% during 2020.

TAX-EXCLUDED EDUCATION PAYMENTS BY EMPLOYER TEMPORARILY INCLUDE STUDENT LOAN REPAYMENTS

  • Employers can give employees up to $5,250 for educational assistance (normally for tuition) tax free to the employee.

  • CARES Act allows employers to include reimbursements for paying off student loans in the $5,250 annual limit.

  • If student loan interest is paid for / reimbursed by employer, the employee cannot take the student loan interest deduction.

  • Effective 3/27/20 - 12/31/20