Phase 3 of the COVID-19 stimulus package (the CARES Act) was just signed by President Trump. The CARES Act includes several income tax provisions that attempt to lessen the impact and encourage individuals and businesses to keep putting money back into the economy. See https://mwbpc.com/the-cares-act-business-highlights/ for the business highlights of the CARES Act.
Business Tax Provisions
- Provides a refundable payroll tax credit (the Employee Retention Tax Credit) for 50% of wages, including health benefits, up to $10,000 paid to each eligible employee during the COVID-19 crisis (March 13 to December 31, 2020). The credit is available to employers whose:
- Operations were fully or partially suspended, due to a COVID-19 related shut-down order, OR
- Gross receipts declined by more than 50% when compared to the same quarter in the prior year.
- Provides a technical correction for qualified improvement property enabling businesses to immediately write-off costs associated with improving facilities (correcting a drafting error in the 2017 Tax Cuts and Jobs Act (TCJA)). AMENDED TAX RETURN OPPORTUNITY.
- Allows net operating losses (NOL) from 2018, 2019, or 2020 to be carried back five years, and temporarily removes the 80% of taxable income limitation allowing an NOL to fully offset income.
- Modifies the loss limitation applicable to pass-through business owners and sole proprietors to allow full utilization of business losses rather than a $500,000 limit ($250,000 for single filers) as required under the TCJA.
- For taxpayers subject to Section 163(j) interest expense limitations as required under the TCJA, increases the limitation on the ability to deduct interest expense from 30% to 50% of taxable income for 2019 and 2020.
- Accelerates corporate alternative minimum tax (AMT) credits into 2019 (or 2018 with election) originally allowed over several years through 2021. AMENDED TAX RETURN OPPORTUNITY.
- Modifies limitations on mandated family and sick leave enacted in the phase 2 coronavirus legislation.
- For family leave, employers are not required to pay each employee more than $200 per day ($10,000 aggregate).
- For mandated sick pay, employers are not required to pay each employee more than $511 per day ($5,110 aggregate) for sick leave or more than $200 per day ($2,000 aggregate) to care for a quarantined individual or child.
- Allows employers to defer making payroll tax payments of the employer share of the Social Security tax (6.2% OASDI). Also allows self-employed individuals to defer paying half of the Social Security portion of their self-employment tax.
- Deferred payments must be paid over the following two years, with half due by Dec. 31, 2021 and the other half by Dec. 31, 2022.
Individual Tax Provisions
- Checks or direct deposits up to $1,200 for single taxpayers and $2,400 for married joint filers plus $500 for each of the taxpayer’s dependent children under age 17.
- Phaseouts ($5 for every $100 in income above the threshold) begin at $75,000 for single taxpayers and $150,000 for married joint filers, and phaseout entirely (for those without children) by $99,000 for single taxpayers and $198,000 for married joint filers.
- $300 above-the-line deduction for charitable contributions made in 2020.
- Charitable deduction limitations relaxed by suspending the individual 50% of adjusted gross income limitation for 2020. (For corporations, the 10% taxable income limitation is increased to 25% of taxable income.)
- Income tax exclusion for employees who receive student loan repayment assistance up to $5,250 from their employer.
Relaxation of Retirement Plan Rules
Individuals affected by the virus with retirement accounts now have various ways to address the economic and health impact felt due to the pandemic.
- Temporary waiver of the 10% early withdrawal penalty for distributions from qualified retirement accounts for COVID-19 related purposes up to $100,000 per individual (i.e. positive diagnosis or necessary quarantine for an individual/spouse/dependent, loss of wages due to pandemic, etc.).
- Any such withdrawal will be taxed over 3 years and can be recontributed within 3 years without regard to the normal annual contribution limits.
- Individuals who meet the same criteria can take loans equal to the lesser of $100,000 or 100% of the account balance (increased from the previous $50,000 limit or 50% of the account balance).
- Payments on all loans due in 2020 from qualified plans can be deferred for one year.
- For 2020, there are NO required minimum distributions (RMD) from qualified plans or IRAs. POSSIBLE OPPORUNITY: For anyone who recently took their RMD from an IRA, this may be an opportunity to use the 60-day rollover provision.
Reach out to the team at MWB for any questions you may have on anything above or ANY impact you are seeing to your business during this time.