On March 27, the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The 883 page bill is filled with numerous financial and economic relief provisions for individuals and business. This article summarizes our initial remarks, however we will provide additional comments in the days and weeks to come. Below are some highlights of the Act.
Rebates and Other Individual Provisions
- The Act provides recovery rebates of up to $1,200 for single filers and $2,400 for joint filers. The mechanism for paying the rebates is an advance refundable tax credit. Rebate amounts are increased by $500 for each qualifying child and are phased out based on adjusted gross income (AGI) for single taxpayers making over $75,000 annually and for joint filers making over $150,000 annually.
- The rebates are available even if a taxpayer has no income and no action is generally required to claim the rebates. The Internal Revenue Service (IRS) will use the taxpayer’s 2019 tax return income, if filed, or their 2018 tax return income to calculate eligibility for the credit.
- In the event that a taxpayer’s AGI is too high to receive the rebate based on 2018 and 2019 income, the taxpayer’s 2020 AGI will be used to determine eligibility.
- The Act extends the due date for 2019 IRA contributions from April 15, 2020 to July 15, 2020.
- The Act waives the additional 10% tax for premature distributions related to Coronavirus from individual retirement accounts (IRAs) and retirement plans, up to $100,000. Note that the distributions will still be subject to income tax unless it is re-payed ratably over the subsequent three years.
- The Act provides for a one-year delay in required minimum distributions (RMDs) that need to be taken by April 1, 2020 and for all 2020 RMDs.
- The Act suspends the 50% limitation on an individual’s charitable contributions as a percentage of adjusted gross income for the year.
- The Act provides for a $300 “above the line” charitable contribution deduction made in 2020 for cash contributions to qualified charities.
- The Act allows an employer to repay up to $5,250 of an employee’s student loan debt tax-free to the employee if repayment is made after the date of enactment and before January 1, 2021.
Employee Retention Credit
- The Act provides eligible employers and tax-exempt organizations a refundable credit against payroll tax (Social Security) liability equal to 50% of the first $10,000 in wages per employee. It appears eligible wages do not include creditable wages paid under the Families First Coronavirus Response Act. Eligible employers must have carried on a trade or business during 2020 and satisfied one of two tests:
- Business operations have fully or partially suspended operations due to orders from a governmental entity limiting commerce, travel or group meetings due to COVID-19 (COVID-19 causes); or
- The employer experienced a quarterly reduction in gross receipts of at least 50% when compared to the same quarter in the prior year, and gross receipts don’t exceed 80% year-over-year.
- For employers with more than 100 full-time employees, only employees who are currently not providing services for the employer due to COVID-19 causes are eligible for the credit. The employee retention credit is effective for wages paid after March 12, 2020 and before January 1, 2021.
- If an employer is receiving a Small Business Interruption Loan under the Small Business Act (SBA) they are NOT eligible for the Employee Retention Credit.
Delay of Employer Payroll Taxes
- The Act postpones the due date for depositing employer payroll taxes and 50% of self-employment taxes related to Social Security (not Medicare) attributable to wages paid from the date of enactment through December 31, 2020. The deferred amounts are due over the next two years with 50% due December 31, 2021 and 50% due December 31, 2022.
Treatment of Losses (Net Operating Losses – NOLs)
- Suspends the 2017 Tax Cuts and Jobs Act (TCJA) 80% of taxable income limit on NOL carryovers for three years (2018, 2019 and 2020).
- Allows NOLs arising in 2018, 2019 and 2020 to be carried back five years.
Limitation of Business Interest Expense (Internal Revenue Code 163(j))
- The Act temporarily relaxes the limitation on business interest expense by increasing the threshold from 30% to 50% for 2019 and 2020 (special tax year 2019 rules apply to partnerships). It would also allow a taxpayer to elect to use 2019 income in lieu of 2020 income for purposes of calculating the 2020 limitation.
The Act also adopts a few of the 2017 TCJA technical corrections on a permanent (retroactive to 2018) basis including:
- 15 year Qualified Improvement Property technical correction. Note this technical correction changes certain 39-year depreciable property into 15-year depreciable property. Such property will now qualify for 100% bonus depreciation.
Due dates and 2020 estimated tax payments
- IRS Notice 2020-18 has deferred the first quarter 2020 federal estimated tax payment until July 15, 2020. Presumably, second quarter 2020 individual federal estimated tax payments are still due June 15, 2020.
- At least one version of the earlier Senate bill indicated 2020 individual income tax estimated tax payments would not be due until October 15, 2020. That language did not make it into the final bill.
- Oregon has currently indicated that, while 2019 individual income tax returns are automatically extended until July 15, 2020, the first quarter 2020 Oregon individual estimated tax payment is still due April 15, 2020.
Please note the highlights mentioned above are not an all-inclusive summary. There are many provisions of the Act not described above. We will provide additional information in the days and weeks ahead. Should you have any questions, please call our office at 541-687-1170.