CARES Act Tax Provisions
On March 27, 2020, President Trump signed into law The Coronavirus Aid, Relief, and Economic Security (CARES) Act. The law is huge in its potential impact. This correspondence deals with the specific tax aspects of the new law.
INDIVIDUALS AND FAMILIES
Individual Tax Credit/Rebate
All individuals who are not dependents are eligible to receive a rebate of up to $1,200 rebate ($2,400 for married filing joint taxpayers). In addition, taxpayers with children dependents (up to age 17) qualify for up to a $500 rebate per child. The payment will be based on the 2018 tax return (2019 if already filed) and includes a phase-out for AGI over thresholds of $75,000 ($150,000 for married filing joint and $112,500 head of household filers). If you wish to see if you qualify please look at line 7 on your 2018 Form 1040 or line 8b on your 2019 form 1040. The amounts paid for children are not income dependent so taxpayers will get checks for their children even if their income is too high.
The rebate acts as an advanced tax credit and will be reconciled on the 2020 tax return. This effectively means that it will not be taxable income to those who receive it.
Retirement Account Changes
Retirement distributions up to $100,000 and used for coronavirus related reasons (could be economic) will be taxed over a 3 year period and the amount will not be subject to early withdrawal penalties after January 1, 2020. In addition, amounts may be recontributed beyond contribution limits during that time.
The maximum loan allowable has also been increased from $50,000 to $100,000
In addition, required Minimum Distributions are waived for the 2020 tax year.
Enhanced Charitable Deductions
Taxpayers who take the standard deduction are eligible to deduct up to $300 on their 2020 tax returns as a special deduction. This is a permanent change.
Student loan payments made by employers on behalf of their employees are deductible to the business and exempt from tax to the employee up to $5,250 for 2020.
Separately, Federal student loan payments have been suspended until September 30, 2020. Interest is also suspended. This, however, do not apply to all loans and privately funded loans have not been suspended including Sallie Mae.
Unemployment Insurance Provisions
The new law now allows payments to “Covered Individuals” who would not normally be eligible for or who have exhausted regular unemployment compensation and who are unemployed, partially unemployed, or unable to work as a direct result of the COVID-19 public health emergency. This includes self-employed taxpayers. Typically such individuals file a schedule C on their tax return.
Covered Individuals, as well as all those who have qualified for regular unemployment compensation, are entitled to receive an additional $600 payment per week, above what state unemployment compensation law already provides. The additional $600 weekly payment is available from the date that the applicable state enters into an agreement with the federal government until July 31, 2020 (i.e., four months maximum).
Up to 39 weeks of unemployment compensation, including any week for which the Covered Individual received regular compensation or extended benefits is available. An additional 13 weeks of pandemic emergency unemployment compensation through December 31, 2020, is available.
Employee Retention Tax Credit
Up to 50% of qualified wages paid between 3/13/2020 and 12/31/2020 are eligible for a tax credit related to COVID-19. In order to qualify the business must have been fully or partially shut down due to COVID-19 or have a gross income that is 50% less than the same quarter in the prior year.
Deferment of Employer Payroll Taxes
Employers and Self-Employed taxpayers can defer the employer’s portion of the social security tax (6.2%) to be repaid in equal payments by 12/31/2021 and 12/31/2022.
Expanded Net Operating Loss Deduction
A net operating loss (NOL) of a corporate taxpayer between January 1, 2018, and 2021 generally can be carried back five years preceding the taxable year of such loss. Previously no carry back was allowed and all carryforward were limited to 80% available. This rule has also been suspended.
Repeal of Excess Business Loss Rules
The excess business loss limitation has been repealed for self-employed individuals and owners of pass-through businesses for tax years 2018-2020. Previously any taxpayer was limited to a net$500,000 annual loss no matter the number of business owned. This may also warrant the filing of amended returns for 2018 and 2019 if filed.
Qualified Tenant Improvements Bonus Depreciation
One hundred percent bonus depreciation now applies to qualified improvement property. Qualified improvement property (QIP) is any improvement to the interior of a nonresidential building after the building was placed in service, other than elevators, escalators, building enlargements or changes to the building’s internal structural framework. It has a recovery period of 15 years for general depreciation.
AMT Credit Refunds
Under the new tax laws introduced beginning in 2018, AMT tax credits were refundable over several years with any remaining credits fully deductible in 2021. Under this provision, the corporate AMT credit is now 50% refundable in 2018 with any remaining balance fully refundable in 2019. Additionally, an election can be made applying 100% of the AMT credit to 2018 taxes allowing businesses to potentially amend 2018 tax returns to obtain refunds.
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