On March 27, 2020, the President signed the $2.2 trillion Coronavirus, Aid, Relief, and Economic Security (CARES) Act. Listed below are the tax highlights of the legislation.
Recovery checks for individuals
Each individual with income under $75,000 single or $150,000 for married filing joint, will receive a check for $1200 plus an additional $500 per child. The amount is completely phase out for those whose income exceeds $99,000 single or $198,000 married filing joint.
A $300 deduction for charitable contributions for all individuals, even those who don’t itemize.
Retirement plan distributions
Through December 31, 2020, eligible taxpayers can take up to $100,000 in Coronavirus distributions out of their retirement plan without incurring the 10% penalty or repay it within three years. Eligible taxpayers include those who have been diagnosed with or taking care of a dependent with the COVID-19 virus or are experiencing financial hardship from being quarantined, laid off, etc. Further, the income resulting from the distribution can be spread out over three years, and repayments, if chosen, can be delayed.
Employee Retention Credits for employers subject to closure due to COVID-19
A refundable credit equal to 50% of qualifying wages against their employment taxes will apply to employers whose operations are suspended by orders issued in response to COVID-19 or have suffered a decline of more than 50% decrease year over year of gross receipts.
Delay of payment of employer payroll taxes
There will be a two-year payment period for Social Security payroll taxes that would have been owed from the date of passage – December 31, 2020, for employers as well as self-employed individuals. Half the payroll taxes will be due December 31, 2021, and the other half will be due December 31, 2022.
Net Operating Losses
The 80% taxable income limitation has been suspended. Also, Net Operating Loss (NOL) carrybacks for tax years 2018, 2019, and 2020 will be permitted to offset prior year income for five years. Finally, the $500,000 overall NOL limitation has been suspended for taxable years beginning before 2021.
Business interest expense limitations
The limitation has been raised to 50% instead of 30% of adjusted taxable income.
Qualified Improvement Property
The technical correction that we’ve all been waiting for – bonus depreciation for qualifying improvements made to a commercial property. Note that because this is a technical correction, the effective date is the same as the 2018 Tax Cuts and Jobs Act (TCJA).
Barnes Dennig COVID-19 Advisory Team Leaders: