CARES Act
Table of Contents
  Introduction

  Business Provisions
  • Technical Correction
  • Employee Retention Credit
  • Employer Payroll Tax Delay
  • Net Operating Loss (NOL) Modification
  • Acceleration of Corporate AMT Credit
  • Business Interest Deduction
  • Charitable Contribution Changes

Individual Provisions
  • Rebates for Individuals
  • Retirement Plan Distributions-Coronavirus Related
  • Required Minimum Distributions (RMD) Waived
  • Charitable Contribution Changes

Miscellaneous Provisions
Introduction
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act is a large economic stimulus package with many facets, below is a summary of the business and individual tax provisions of the Act that affect many taxpayers. For a summary of the Small Business Administration’s Paycheck Protection Program loans, please see our e-mail entitled Small Business Paycheck Protection Program.

Business Provisions
Technical Correction

  • CARES Act retroactively changes Qualified Improvement Property to 15 year property eligible for 100% bonus depreciation.

Employee Retention Credit

  • Applies to wages paid after March 12, 2020 and before January 1, 2021.
  • Provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
  • Employers receiving Small Business Interruption Loans under Section 1102 of the Act are NOT eligible.
  • Eligible employers:
  1. Operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings, OR
  2. Employer has experienced a greater than 50% reduction in quarterly receipts, measured on year over year basis.
  • Qualifying wages:
  1. NO credit available if employer is allowed a Work Opportunity Tax Credit for the employee for that period.
  2. NO credit available for amounts used for the required paid sick leave or family leave from the Families First Coronavirus Response Act.
  3. Employers with average number of full-time employees 100 or fewer – all wages.
  4. Employers with average number of full-time employees over 100 – only wages of furloughed employees or employees who face reduced hours are eligible.
  5. Wages includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.

Employer Payroll Tax Delay

  • Employers which have indebtedness forgiven under the CARES Act under either Section 1102 or Section 1106 of the Act are NOT eligible.
  • Employer portion of FICA taxes (6.2%) and half of self-employment tax due beginning on March 27, 2020 and ending before January 1, 2021 are now due in two equal installments, one-half on December 31, 2021, and the other half on December 31, 2022.

Net Operating Loss (NOL) Modification

  • For taxable years beginning after December 31, 2017 and before January 1, 2021, taxpayers will be eligible to carry back 100% of NOLs to the prior five taxable years. C corporations may elect to file for an accelerated refund to claim the carryback benefit.
  • For taxable years beginning before 2021, taxpayers will be eligible to deduct 100% of NOL carryforwards.
  • For taxable years beginning after 2021, taxpayers will be able to deduct 100% of NOLs arising in tax years before 2018, and the deduction will be limited to 80% of taxable income for NOLs arising in tax years after 2017.

Acceleration of Corporate AMT credit

  • Allows corporations to claim 100% of AMT credits in 2019 and also allows an election to claim the refund in 2018.

Business Interest Deduction

  • Increases the limit in 2019 and 2020 to 50% of adjusted taxable income for most businesses
  • Partnerships have a 30% limit for 2019, 50% limit for 2020.
  • If a partner has excess business interest in 2019, 50% of the interest is deductible and is not subject to any income limitation, and the remaining 50% is subject to the adjusted taxable income limitations.
  • All businesses may elect to use 2019 adjusted taxable income to calculate the 2020 limitation.

Charitable Contribution Changes

  • For C corporations, the 10% modified taxable income limit is increased to 25% for qualifying contributions made in 2020.
  • For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations, and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.
Individual Provisions
Rebates for Individuals

  • Maximum rebate $1,200 individual, $2,400 married filing joint, $500 for each child that qualifies under the child tax credit (under age 17).
  • Rebates begin to phase out when adjusted gross income exceeds $75,000 for single or married filing separately, $122,500 for head of household, and $150,000 married filing joint.
  • Individuals who can be claimed as dependents (whether or not they are actually claimed) are NOT eligible for the rebate.
  • Rebate computed on 2019 return, if return has not been filed, will be computed based on 2018 return.
  • If not required to file a tax return in either year, the IRS will use information from Form SSA-1099 Social Security Benefit Statement or Form RRB-1099 Social Security Equivalent Benefit Statement.
  • If a taxpayer received an advance rebate during 2020 that was less than the credit that they were entitled to, the taxpayer will be able to claim the balance of the credit on their 2020 tax return.
  • If a taxpayer received an advance rebate during 2020 that was greater than the credit they were entitled to, they won’t have to pay back the excess
  • Rebate will be direct deposited into the account the individual has on file, or mailed if there is no banking information available. A notification will be mailed to the address on record stating how payment was made.

Retirement Plan Distributions-Coronavirus Related

  • Distributions up to $100,000 made on or after January 1, 2020 and before December 31, 2020 to a qualified individual are not subject to 10% penalty, income tax can be paid on the distribution over a three year period, or the taxpayer can contribute the funds back to the retirement plan with no tax consequences if done within a three year period.
  • “Qualified Individual”
  1. Diagnosed with COVID-19.
  2. Spouse or dependent diagnosed with COVID-19.
  3. Individual experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, unable to work due to lack of childcare due to the disease, closing or reducing hours of a business owned or operated by the individual due to the disease, or other factors to be determined by the Secretary of the Treasury.
  • Retirement plan administrator may rely on employee’s certification for reasons listed in #3.

Required Minimum Distributions (RMD) Waived

  • RMDs that would otherwise have to be made in 2020 are waived.
  • Includes distributions that would have been required by April 1, 2020 due to the account owner’s having turned 70 ½ in 2019.

Charitable Contributions Changes

  • Individuals will be able to claim an above the line $300 deduction for donations made to public charities in 2020. Taxpayers that claim the standard deduction will be able to take this deduction.
  • Cash contributions made in 2020 to public charities will be deductible against 100% of modified adjusted gross income instead of limited to 60% of modified adjusted gross income.
Miscellaneous Provisions
There are various tax provisions that will apply to a smaller percentage of taxpayers. If you think any of the below items may apply to you, please contact us for further information.

  • Excess business loss limitations for noncorporate taxpayers temporarily modified
  • Pension funding delay
  • Certain SBA loan forgiveness not taxable
  • Suspension of certain alcohol and aviation taxes
  • Tax-excluded education payments under an employer’s educational assistance program temporarily include student loan repayments
  • Over the counter medications and menstrual care products are now medical expenses for amounts paid from various medical savings accounts and flexible spending arrangements
  • High deductible health plans are now allowed to pay for tele-health and other remote health services without regard to the deductible
  • IRS is authorized to allow employers not to require taxes be deposited for amounts eligible for the sick leave and family leave credit

About Shelton & Company, CPAs, P.C.

Shelton & Company, CPAs, P.C. is a CPA firm specializing in the accounting needs of construction contractors and their related companies. If you have any questions about the information provided here or for more information about our firm, please contact us at 1-800-446-2534 or visit us on the web at www.ConstructionCPAs.com