Cares Act – Tax Provisions

This is one of a series of articles on the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package signed into law on March 27, 2020. For a summary of the small business lending provisions please click here for a summary of distressed industries provisions please click here and for a summary of other employer and employee relief provisions please click here.

The CARES Act includes several tax-related provisions intended to provide relief to taxpayers. This article briefly summarizes the primary tax-related provisions of the bill.

Businesses

Loss Carryback. Taxpayers can carryback net operating losses (NOLs) realized in 2018, 2019, and 2020, to the prior five years. Such carryback had been eliminated by the Tax Cuts and Jobs Act of 2017 (“TCJA”). 

Interest Deduction. The CARES Act temporarily increases the net interest deduction limitation to 50% of adjusted taxable income (previously limited to 30%).

Employee Retention Credit. Employers can claim a refundable payroll tax credit for suspended or closed businesses that continue to pay employees during the crisis, in an amount equal to 50% of the “qualified wages” paid to each employee in an eligible quarter. “Qualified wages” for each employee for all quarters cannot exceed $10,000. For more details on this credit, please click here.

Payroll Tax Due Date. The CARES Act delayed the payment due date for the employer’s share of 2020 Social Security taxes, 50% of which will be due in 2021 and 50% due in 2022. Similarly, for self-employed taxpayers, the Act delayed payment of 50% of 2020 self-employment taxes until 2021 and 2022.

Deprecation of QIP. The CARES Act corrects an error in the TCJA by decreasing the depreciation life of “qualified improvement property” to 15 years, thus making such property eligible for 100% bonus depreciation. This correction is retroactive to January 1, 2018. 

Employer Student Loan Payments. The CARES Act allows employers to provide a limited student loan repayment benefit in an amount up to $5,250 annually to employees on a tax-free basis. The annual limit applies to this new benefit as well as other educational assistance provided under current law. It applies to student loan payments made during the period from March 27, 2020 to December 31, 2020. For more details, please click here.

Individuals

Rebate Checks. The CARES Act will cause direct payments to be made to individuals in the form of a tax rebate check in an amount equal to $1,200 per individual, plus $500 per child. The amount per person begins phasing out when a taxpayer’s income exceeds $75,000. The checks will not be considered taxable income. 

Excess Business Losses. The limitation imposed by the TCJA on the deduction of excess business losses will not apply for tax years 2018-2020.

Retirement Accounts. The CARES Act waives mandatory minimum distribution requirements for retirement accounts for 2020 and allows for early withdrawals from retirement plans without penalty (up to $100,000) for individuals, or their family members, diagnosed with COVID-19 or who otherwise are financially distressed due to the crisis. For more details, please click here.

Charitable Contribution Deductions. Taxpayers that do not itemize can now take a new above-the-line tax deduction for charitable contributions. Taxpayers that do itemized, as well as corporate taxpayers, benefit from increased limits on charitable contributions. 

The above summary is not all encompassing. We anticipate that the Treasury Department will issue interpretive guidance on many of the above items. We will provide more detailed guidance as it is released.