INDIVIDUAL TAX PROVISIONS
Recovery Rebate Payments
The package would provide one-time direct-deposit payments to Americans of $1,200 per adult making up to $75,000 a year, and $2,400 to married couples making up to $150,000, with an additional $500 payment per child under the age of 17 that would be included as a dependent on Form 1040. After a $75,000 threshold for individuals, the benefit would be reduced by $5 for each $100 the taxpayer makes. A similar $150,000 threshold applies to couples, and a $112,500 threshold for heads of households.
The legislation passed by the Senate will use 2019 tax returns, if available, or 2018 tax returns to assess income for determining how much direct financial aid individuals receive. For those who did not have a filing requirement in 2019 or 2018, the IRS will use Form SSA-1099, Social Security Benefit Statement or Form RRB-1099, a Social Security Equivalent Benefit Statement.
Advanced rebates received will be adjusted up or down when filing your 2020 income tax returns. No credits will be allowed to an eligible individual or dependent without a valid social security number.
Tax Filing Dates and Payments
- As previously announced, the April 15 tax filing date has been extended to July 15, 2020.
• Individuals will now be allowed to postpone first quarter estimated tax payments to July 15, 2020.
• There is no cap on the amount of tax payments being postponed.
Modification on Losses for Individuals
The 2017 Tax Cuts and Jobs Act (TCJA) generally limited the amount of losses non-corporate taxpayers could claim to $500,000. The CARES Act suspends this limitation retroactively to 2018, thus allowing individuals to potentially amend 2018 tax returns and/or maximize their 2020 loss. Being able to report these excess business losses along with the new NOL carryback provisions (discussed below) will provide clients with access to much-needed cash flow.
Hardship Withdrawals and Loans from 401k Plans and IRAs
For those younger than 59 1/2, the CARES Act allows a “coronavirus-related distribution” of up to $100,000 during 2020, from a qualified retirement plan, free from the 10% penalty.
A “coronavirus-related distribution” is a distribution made during 2020:
- To an individual who is diagnosed with SRS-COV-2 or COVID-19 by a test approved by the CDC,
- whose spouse or dependent is diagnosed with one of the two diseases, or
- who experiences adverse financial consequences as a result of being quarantined, furloughed or laid off or having work hours reduced, or being unable to work due to lack of child care.
While the distribution escapes the 10% penalty, it doesn’t escape the income tax. The Act, however, would allow the income recognition over a 3-year period beginning with 2020. The taxpayer also has the choice to avoid any income recognition by repaying the distribution to the retirement plan within three years of receiving it.
In addition, the amount an individual may borrow from his or her retirement plan is increased from $50,000 to $100,000 for the 180-day period beginning after the enactment of the Act.
Temporary Waiver of Required Minimum Distribution Rules
Required Minimum Distributions (RMDs) from IRAs, Defined Contribution Plans and 457(b) plans are suspended for calendar year 2020. RMD requirements also do not apply to any distribution which is required to be made in calendar year 2020 by reason of a required beginning date occurring in calendar year 2020, and such distribution not having been made before January 1, 2020.
Small Charitable Contribution Deduction for Non-Itemizers
For individuals who cannot itemize, an above the line deduction will be allowed for any qualified cash charitable contributions made, not to exceed $300.
Modification of Limitations on Charitable Contributions During 2020
The limitations on deductions for charitable contributions will be increased for individuals who itemize, as well as corporations. For individuals, the 60% of adjusted gross income limitation will be suspended for 2020. For corporations, the 10% limitation will be increased to 25% of taxable income. The contribution limitation relief will not apply to cash gifts to Donor Advised Funds and Private Foundations.
Income Exclusion Related to Employer Payment of Student Loan Debt
- Principal and interest payments on federally-held student loans have been suspended through September 30, 2020.
• Payments up to $5,250 made before January 1, 2021, by an employer either to the employee or to a lender of principal and/or interest on qualified education loans will not be taxable to the employee. This will apply from the date the bill is signed into law until the end of 2020.
BUSINESS TAX PROVISIONS
Employee Retention Credit
Employers that have been forced to close their business due to a government-mandated shutdown will be allowed a refundable payroll tax credit for retaining their employees. The credit is generally available to a business whose operations have been fully or partially closed due to a government mandate and whose gross receipts have declined by more than 50%. For a business with 100 or fewer employees, all employee wages qualify for the credit regardless of whether the business is shut down or not. The credit is limited to the first $10,000 of compensation paid per employee. This credit is available through the end of 2020.
Delay of Payroll Taxes
The CARES Act allows businesses to delay the 6.2% employer portion of the Social Security payroll tax for the remainder of 2020. The delayed tax liability would then be paid back 50% by December 31, 2021 and 50% by December 31, 2022.
Qualified Improvement Property (QIP) Technical Fix
The TCJA was intended for businesses to deduct improvements made to the interior portion of nonresidential property immediately under the TCJA’s bonus depreciation provisions; but due to a drafting error the depreciation lifespan was set at 39 years. The CARES Act corrects this error retroactive to 2018. Businesses with significant outlays on QIP in previous years should consider amending their 2018 returns to claim the deductions and receive a refund. This will be a major benefit to our auto dealership, commercial real estate, retail, and restaurant clients.
Interest Deductibility Limit Increased
The TCJA limited the deductibility of business interest to 30% of an entity’s adjusted taxable income, except for floor plan financing interest, which remained 100% deductible. The CARES Act allows businesses to deduct up to 50% of their adjusted taxable income for 2019 and 2020. Businesses unable to use full expensing in 2019 due to interest expenses between 30% and 50% of their adjusted taxable income, may be able to generate refunds by filing an amended 2019 return.
Special Note to our Dealership Clients
Coupled with the proposed IRS rules on the interplay between bonus depreciation and floor plan financing interest, if the total business interest, including floor plan financing interest, amounts to less than 50% of adjusted taxable income for these years, the dealership may also be able to avail themselves of the bonus depreciation provisions in TCJA.
The corporate alternative minimum tax (AMT) was repealed by the 2017 tax revision (P.L. 115-97). Corporations having AMT credits (for prior year AMT payments) were allowed to claim the credits against regular tax liability for tax years through 2021. This provision makes these credits refundable in tax years 2018 and 2019.
TAX PROVISION APPLICABLE TO INDIVIDUALS AND BUSINESSES
Modification of Net Operating Loss (NOL) Carryback
The NOL carryback provision was previously eliminated by the TCJA in 2017. The new provision would allow carrybacks for up to five years for net operating losses (NOLs) recorded by C Corporations in tax years 2018, 2019, and 2020. This provision also allows taxpayers not subject to the corporate income tax that incur NOLs, including individuals and sole proprietorships, to receive the temporary NOL carryback capabilities provided to corporations, as described above. This provision may provide businesses and individuals that incur losses in 2020 with substantial refunds. If carried back to 2017, the related refund would be based on the higher pre-TCJA tax rates—providing an additional benefit.
However, individuals and businesses will not be allowed to offset NOLs carryback against income included under the repatriation provisions of Section 965. This means that taxpayers will not be able to get refunds for taxes paid on deemed repatriation income. Taxpayers may elect to forego the carryback period to any year to which a deemed repatriation income inclusion occurred (i.e., elect not to carryback NOL to 2017).
SMALL BUSINESS LOANS
In a move designed to keep small businesses afloat, the CARES Act provides that businesses with fewer than 500 employees — including sole proprietors and nonprofits— will have access to nearly $350 billion in loans under Section 7 of the Small Business Act during the “covered period,” which runs from February 15, 2020 through June 30, 2020. The loans, which are referred to as “paycheck protection loans” are fully guaranteed by the federal government through December 31, 2020. A separate section of the CARES Act calls for a portion of these paycheck protection loans to be forgiven on a tax-free basis. The CARES Act also expands access to Economic Injury Disaster Loans under Section 7(b)(2) of the Small Business Act to include not only businesses with fewer than 500 employees, but also sole proprietors and ESOPs.
This program is available to companies and nonprofits with less than 500 employees, as well as self-employed individuals that were in operation prior to February 15, 2020. Applicants will be required to sign a good faith certification that their business or nonprofit has been affected by COVID-19 and that funds will be used to retain employees and existing debt obligations. The loans have no borrower or lender fees associated with them and are guaranteed 100% by the government and not by the company or individual.
The borrower is required to use the money on payroll costs, debt obligations, rent and utilities. The greatest benefit to the borrowers is that if the funds are used for these purposes and other qualifications are met, the borrower is eligible for up to 100% loan forgiveness. Debt forgiveness is typically considered taxable income to the business or business owner, however, under this law the forgiveness is completely tax free.
In order for the loan to be completely forgiven employers must use the funds for the purposes previously listed during the first 8-week period after the loan origination. They must also maintain the same level of full time employees (FTEs) during this period that the company had on average during portions of the previous year. Should this percentage of FTEs decrease, the amount of the loan forgiven decreases proportionally.
The Small Business Administration website has been updated to provide you with information to start the loan application process. The programs as of now are first come first serve with a set amount of funds available. We urge to you to begin the process by doing the following:
- Find a local SBA banker/lender at http://www.sba.gov/LenderMatch
- Access the SBA loan application site at
- Your completed application can be uploaded directly on this site
- If you need immediate cash to bridge payroll, inventory or other overhead expenses, you should apply for an Express Disaster Bridge Loan. The Terms of this loan are:
- Up to $25,000 available while waiting on a decision on additional loans
- A fast turnaround to get funds at work immediately
- The Express Loan can be repaid in full or in part by subsequent proceeds from an Express Economic Injury Disaster Loan
We urge you to visit the www.SBA.gov website for specific information to submit your application.