CARES Act

Coronavirus Aid, Relief and Economic Security (CARES) Act

March 27, 2020 - Millions of American businesses have anxiously awaited the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act. Some relief of the economic hardship caused by the Coronavirus pandemic is close at hand with President Trump signing this into law March 27, 2020.  The CARES Act provides aid in the form of a $500 billion fund for loans and stimuli (which includes $425 billion for businesses and state and municipal governments), $221 billion in business tax breaks, as well as $350 billion for small businesses including forgivable loans.  Below are some of the highlights of the CARES Act business relief.

  • Employee Retention Credit. There is an employee retention credit for employers subject to closure due to the Coronavirus. Employers are eligible for a refundable payroll tax credit on 50% of the qualified wages paid during the COVID-19 pandemic. Requirements to claim the credit are: (1) employers must have had their business operations fully or partially suspended due to the coronavirus, or (2) their gross receipts declined by over 50% compared to the same quarter last year. The exact credit will depend on whether the business has 100 or fewer employees.

For businesses with greater than 100 full-time employees’ qualified wages are wages paid to employees when they are not providing services due to the Coronavirus related circumstances. For eligible businesses with 100 or fewer full-time employees, all employee wages qualify for the credit. In this case, it does not matter whether the business is open, or subject to a shutdown order. The credit is provided for the first $10,000 of wages (including health benefits) paid or incurred to an eligible employee from March 13, 2020 through December 31, 2020.

  • Payroll Tax Deferral. Employers and self-employed individuals can delay payment of the 6.2% Social Security payroll tax they pay to the federal government for their employees. This deferred payroll tax payment can be paid over two years. Half of this deferred tax has to be paid by December 31, 2021, and the other half by December 31, 2022.
  • NOL Carryback Provisions. Businesses with net operating loss (NOL) carrybacks have been provided additional relief that should aid in a company's cash flow. NOL's occurring in tax years beginning in 2018, 2019, or 2020 can be carried back five years. In addition, the 80% taxable income limitation has been removed, allowing businesses with an NOL to fully offset taxable income.
  • Excess Business Loss Limitation. The excess business loss limitation applicable to pass-through businesses and sole proprietors has been postponed until 2021, so businesses can utilize excess business losses as well.
  • Business Interest Expense Limitations. The amount of interest expense businesses are allowed to deduct increases from 30% to 50% of taxable income subject to adjustments for 2019 and 2020.
  • Alternative Minimum Tax Credits. Under the Tax Cuts and Jobs Act, the corporate alternative minimum tax (AMT) was repealed. Corporate AMT credits were made available as refundable credits over several years. The CARES Act allows companies to claim a refund to recover those AMT credits now.
  • Bonus Depreciation. The CARES Act corrects an error in the Tax Cuts and Jobs Act regarding improvements.  Qualified improvement property classified as 15-year property under MACRS are eligible for bonus depreciation, allowing businesses to write off costs immediately, instead of having to depreciate those improvements over a 39-year life. The new act allows businesses to amend a prior year return, as well as gives them an incentive to continue investing in improvements.
  • Paycheck Protection Program. This program authorizes up to $350 billion of federally guaranteed loans to qualifying small and medium sized businesses. Available loans are the lesser of  $10 million  or 2.5 times monthly payroll per business. Loans may be forgiven if a business maintains its payroll through June 30, 2020.  The Paycheck Protection Program also expands the businesses that are eligible for loans, modifies the loan terms (including eliminating guarantee and collateral requirements of the borrower), and modifies a number of provisions making the loan process faster and more efficient so banks are more willing to make loans.
  • Federal Excise Tax. Effective for calendar year 2020, the CARES Act waives the federal excise tax on any distilled spirits used for, or contained in, hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration.
  • Defined Benefit Plans. Relief is provided to single-employer defined benefit plan funding, giving companies more time to meet their funding obligations. The due date has been extended for any contribution due during 2020 until Jan. 1, 2021. However, contributions due earlier are subject to interest.
  • Charitable Contributions. The business charitable contribution limitation for 2020 has changed. The 10% of taxable income limitation is increased to 25% percent of taxable income for the 2020 tax year. Also, the limitation on deductions for contributions of food inventory increases from a 15% limitation to a 25% limitation.
  • Federal Aviation Excise Tax. The CARES Act temporarily repeals the Federal Aviation Excise Tax as of the date of enactment through December 31, 2020. Federal excise taxes collected on commercial aviation with respect to the transportation of persons and property, as well as aviation fuel, are temporarily repealed.

While these provisions could take several weeks for Federal Agencies, such as the IRS, to create regulations for the practical implementation and operation of the CARES Act, above is a glimpse at what can be expected to help businesses across our nation. Please feel free to contact your Dermody, Burke & Brown tax advisor to further discuss any questions you may have.

 

The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.