The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, which passed the Senate by a 96-0 vote late on Wednesday, contains a host of tax measures as part of a $2 trillion aid package designed to help the economy as it suffers from the effects of the coronavirus pandemic. While the focus of the legislation is not tax, a large number of tax provisions are included in the action.
The one thing our politicians are good at and can all agree on… is coming up with a phrase or name for their bills that will convert to a catchy acronym.
Recovery rebates
The bill provides for payments to taxpayers — “recovery rebates” —
which are being treated as advance refunds of a 2020 tax credit. Under this
provision, individuals will receive a tax credit of $1,200 ($2,400 for joint
filers) plus $500 for each qualifying child. The credit is phased out for
taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers),
$112,500 (for heads of household), and $75,000 for other individuals. The
credit is not available to nonresident aliens, individuals who can be claimed as
a dependent by another taxpayer, and estates and trusts. Taxpayers will reduce
the amount of the credit available on their 2020 tax return by the amount of
the advance refund payment they receive.
Payroll tax credit refunds
The bill provides for advance refunding of the payroll tax credits enacted last
week in the Families First Coronavirus Response Act, P.L. 116-127. The credit
for required paid sick leave and the credit for required paid family leave can
be refunded in advance using forms and instructions the IRS will provide. The
IRS is instructed to waive any penalties for failure to deposit payroll taxes
under Sec. 3111(a) or 3221(a) if the failure was due to an anticipated payroll
tax credit.
Employee retention credit
The bill creates an employee retention credit for employers that close due to
the coronavirus pandemic. Eligible employers are allowed a credit against
employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for
each employee. Eligible employers are employers who were carrying on a trade or
business during 2020 and for which the operation of that business is fully or
partially suspended due to orders from an appropriate governmental authority
limiting commerce, travel, or group meetings due to the COVID-19 outbreak. Employers
that have gross receipts that are less than 50% of their gross receipts for the
same quarter in the prior year are also eligible, until their gross receipts
exceed 80% of their gross receipts for the same calendar quarter in the prior
year. For employers with more than 100 employees, wages eligible for the credit
are wages that the employer pays employees who are not providing services due
to the suspension of the business or a drop in gross receipts. For employers
with 100 or fewer employees, all wages paid qualify for the credit.
Retirement plans
Taxpayers can take up to $100,000 in coronavirus-related distributions from
retirement plans without being subject to the Sec. 72(t) 10% additional tax for
early distributions. Eligible distributions can be taken up to Dec. 31, 2020.
Coronavirus-related distributions may be repaid within three years. For these
purposes, an eligible taxpayer is one who has been diagnosed with SARS-CoV-2
virus or COVID-19 disease or whose spouse or dependent has been diagnosed with
SARS-CoV-2 virus or COVID-19 disease or who experiences adverse financial
consequences from being quarantined, furloughed, or laid off, or who has had
his or her work hours reduced, or who is unable to work due to lack of child
care. Any resulting income inclusion can be taken over three years. The bill
also allows loans of up to $100,000 from qualified plans, and repayment can be
delayed.
The bill temporarily suspends the required minimum distribution rules in Sec. 401 for 2020.
The bill delays 2020 minimum required contributions for single-employer plans until 2021.
Charitable deductions
The bill creates an above-the-line charitable deduction for 2020 (not to exceed
$300). The bill also modifies the AGI limitations on charitable contributions
for 2020, to 100% of AGI for individuals and 25% of taxable income for
corporations. The bill also increases the food contribution limits to 25%.
Payroll tax delay
The bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31,
2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50%
will not be due until those same dates.
Net operating losses
The bill temporarily repeals the 80% income limitation for net operating loss
deductions for years beginning before 2021. For losses arising in 2018, 2019,
and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the
carryback).
Excess loss limitations
The bill repeals the Sec. 461(l) excess loss limitation. Sec. 461(l) was added
to the Code by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, and it
disallows excess business losses of noncorporate taxpayers if the amount of the
loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).
Corporate alternative minimum tax (AMT)
The bill modifies the AMT credit for corporations to make it a refundable
credit for 2018 tax years.
Interest limitation
For tax years beginning in 2019 and 2020, Sec. 163(j) is amended to increase
the adjusted taxable income percentage from 30% to 50%. Also, taxpayers can
elect to use 2019 income in place of 2020 for the computation.
Qualified improvement property
The bill also makes technical corrections regarding qualified improvement
property under Sec. 168 by making it 15-year property.
Aviation taxes
Various aviation excise taxes are suspended until 2021.
Health plans
The rules for high-deductible health plans (HDHPs) are amended to allow them to
cover telehealth and other remote care services without charging a deductible.
Over-the-counter menstrual care products are added to the list of items that can be reimbursed out of a health savings account, Archer medical savings account, or health reimbursement arrangement.
This article originally appeared on The Journal of Accountancy website–here.
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