Late on March 25th, 2020, the US Senate passed a bill to aid businesses and individuals who are all struggling with the economic and health effects of the COVID19 pandemic. The bill still needs to pass the house where some changes are likely to be made and will then be sent to the President for signature. Below are key provisions that apply to individuals and small businesses. These aren’t set in stone as of yet but the final bill should be passed either on March 26th or 27th.
Business Tax Relief
Employee Retention Credit
The bill grants eligible employers a credit against employment taxes equal to 50% of qualified wages paid to employees who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts. The credit is claimed quarterly but can only be taken on the first $10,000 per employee per quarter. We will update this post with requirements defining qualified wages, qualified employees, and qualified employers. The credit applies to wages paid after 3/12/2020 and before 1/1/2021.
Payroll Tax Deferral
The bill allows for the deferment of employer side Social Security Taxes. Payroll tax that was due from the time the law is signed through 12/31/2020 are eligible for deferral. 50% of deferred payroll taxes are due by 12/31/2021 and the rest is due 12/31/2022. This is an extra long deferment so proper planning is key to not hitting a cash crunch when these tax become due.
Net Operating Losses
The bill allows for a 5 year carryback of net operating losses arising in 2018, 2019, or 2020 by a business. Businesses will be allowed to amend or modify tax returns dating back to 2013 to take advantage of the carryback.
The bill also eliminates loss limitation rules applicable to sole proprietors and pass-through entities to allow them to take advantage of the NOL carryback.
Additionally, the bill allows for NOLs arising before 1/1/2021 to fully offset income instead of the 80% that is allowed currently.
Qualified Improvement Property
This is a technical correction that allows for Qualified Improvement Property to be depreciated over 15 years instead of 39 and therefore qualified for the 100% bonus depreciation that was introduced with the Tax Cuts and Jobs Act of 2017. This is retroactive and applies to property placed in service after 9/27/2017.
Excise Tax Relief
The bill also provides a temporary exception from alcohol excise taxes for alcohol for use in or contained in hand sanitizer produced or directed by the FDA related to the pandemic. This would apply to breweries and distilleries who are producing hand saniziter.
SBA Loan Forgiveness
The bill allows for forgiveness of certain amounts obtained through the expanded SBA 7(a) loan program. The provision provides details as to how the amount of forgiveness is calculated and we will be updating this post once more guidance is received.
Individual Tax Relief
Individuals will receive up to $1,200 and married couples will receive up to $2,400, both depending on adjusted gross income levels from 2018 or 2019 tax returns depending on if 2019 has been filed or not. For single individuals, the payments will be lower by $5 for every $100 above $75,000 for single filers, above $112,500 for heads of households, and $150,000 for joint filers. Rebate payment is fully phased out for single individuals at $99,000, for heads of households at $136,500, and for joint filers at $198,000. In addition there is a $500 credit for each dependent.
The bill waives the early withdrawal penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. A coronavirus-related distribution is one made during 2020 to an individual (or their spouse) diagnosed with COVID19 with a CDC approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus. Tax on these early withdrawals will be spread out over 3 years and withdrawals may be re-contributed to a qualified retirement plan without regard to annual caps on contributions if made within 3 years.
The bill also waives required minimum distributions for the 2020 tax year regardless if the person has been impacted by the pandemic.
There are 2 incentives for making charitable contribution. First, the bill allows for an above-the-line deduction of up to $300 in charitable contributions made by individuals. This will allow for a charitable contribution deduction whether you itemize deductions or not.
Secondly, the bill adjusts the percent of adjusted gross income limitations on charitable contributions from 50% to unlimited for individuals.