Senate Majority Leader Mitch McConnell, R-Ky., introduced legislation(S. 3548) on Thursday, March 19, to provide direct cash payments to families, grant tax relief to individuals and businesses, particularly airlines and healthcare, to blunt the economic effects of the novel coronavirus pandemic. The 250-page bill is scheduled for debate with Democrats on Friday. Some of the legislation targets changes that would apply to 2019 tax returns.
The Coronavirus Aid, Relief and Economic Security Act (CARES act) would authorize the Internal Revenue Service to send checks up to $1,200 to individuals, increased by $500 for every child, subject to income limitations. The bill would include delaying the April 15 tax filing deadline to July 15, pushing back estimated tax payments for corporations to October 15, 2020, expanded availability of small business loans, tax favored withdrawals from retirement plans up to $100,000, SBA loan deferrals for up to a year, and deferring employers’ portions of Social Security taxes for a period to be set, for one to two years.
The $1,200 payments to individuals, or $2,400 payments to couples filing joint tax returns, would be reduced for those with incomes above $75,000, or $150,000 for couples, and would be eliminated for those with incomes of more than $99,000, or $198,000 for couples. The payments would be based on 2018 tax returns.
The legislation would allow individuals to postpone paying their estimated tax obligations until October 15, 2020, in an effort to stimulate the economy, and in addition to delaying the tax filing deadline until July 15, 2020.
The legislation allows employers and self-employed workers to pay their 6.2% payroll tax obligations over the next two years. Employers that choose to defer payment must provide half of the total amount by December 31, 2021 and the other half by December 31, 2022.
The legislation would also waive the 10% early-withdrawal penalty from qualifying retirement savings accounts for disbursements worth up to $100,000, if individuals are responding to “coronavirus-related purposes.”
Businesses would also be able to increase the amount of interest expense they can deduct for the 2019 and 2020 tax years by raising the 30% limitation on adjusted taxable income to 50%, per Internal Revenue Code Section163(j).
The bill also provides that businesses can carry back losses from 2018, 2019 and 2020, for up to five years as in the past. Also, net operating losses would temporarily not be subject to a taxable income limitation, meaning they could fully offset income.
The bill allows companies to immediately write off expenses related to physical improvements instead of depreciating them over the course of 39 years. It restores the limits on “downward attribution” of the stock ownership of foreign corporations, undoing a change under the TCJA that subjected some foreign entities to additional tax and reporting requirements.
The legislation would allow individuals to deduct up to $300 in charitable contributions, regardless of whether they itemize their returns or utilize the standard deductions.
The bill would exempt airlines from paying some aviation excise taxes for 2020.
Senate Minority Leader Chuck Schumer, D-N.Y., announced a plan that would rely on expanding unemployment insurance in lieu of supplying direct cash payments, in an amount equal to 100% of workers’ wages.
Barnes Dennig is following updates and responses to the COVID-19 pandemic as they are announced. Our team is dedicated to helping our friends and clients navigate these difficult and complex issues. Contact a member of the Barnes Dennig team today to talk through your financial strategy or call 513-241-8313.