CARES Act – Key Tax Provisions

Congress has passed the CARES Act. The following is a brief summary of the key tax provisions affecting individuals and businesses. More detailed information will be provided in the near future. Many of these provisions are retroactive and may require guidance from the IRS.

Provisions Affecting Individuals

Individual recovery rebate/credit – A tax credit for 2020 will be advanced to eligible individuals in the form of a stimulus payment. Eligibility begins to phase-out for single individuals whose adjusted gross income is $75,000 and for individuals filing a joint return at $150,000. The credit is $1,200 per individual and $500 for each qualifying child under the age of 17. 

Early withdrawal penalty on retirement plan distributions Individuals may withdraw up to $100,000 from a retirement plan without being subject to the 10% early withdrawal penalty if they or an immediate family member is diagnosed with coronavirus or experiences financial distress from being unable to work as a result of coronavirus.

RMD requirement waived for 2020 – The requirement to withdraw a minimum distribution from a retirement account will be suspended for 2020.

$300 above-the-line charitable deduction – For 2020, Individuals who claim the standard deduction on their tax returns will be entitled to deduct up to $300 of qualifying charitable contributions as an extra deduction.

Modification of limitations on individual cash charitable contributions during 2020 – The deductibility of qualifying charitable contributions will not be subject to the percentage of adjusted gross income limitations for 2020.

Tax-excluded education payments by an employer temporarily include student loan repayments – Eligible student loan repayments up to $5,250 made by an employer before January 1, 2021, may be excluded from income.

Provisions Affecting Businesses

Employee retention credit for employers A refundable payroll tax credit is available for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. 

Delay of payment of employer payroll taxes Taxpayers can defer payment of the employer portion of certain payroll taxes through the end of 2020. It also applies to 50% of self-employment taxes. Half of the deferred taxes are due on December 31, 2021, and the balance one year later.

Temporary repeal of taxable income limitation for net operating losses (NOLs) Provision temporarily removes the 80% taxable income limitation to allow an NOL to fully offset income.

Modification of rules relating to net operating loss (NOL) carrybacks NOLs arising in a tax year beginning after Dec. 31, 2018, and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of the loss.

Modification of limitation on excess business losses for noncorporate taxpayers – Provision modifies the loss limitation for noncorporate taxpayers so they can deduct excess business losses arising in 2018, 2019, and 2020.

Corporate minimum tax credit (MTC) is accelerated C corporations can claim 100% of unused AMT credits in 2019.

Deductibility of business interest expense temporarily increased – Provision retroactively increases the limitation on the deductibility of interest expense under Code Sec. 163(j)(1) from 30% to 50% for tax years beginning in 2019 and 2020. The increase in the limitation will not apply to partners in partnerships for 2019, but half of the excess interest can be used in 2020 without limitation.

Bonus depreciation technical correction for qualified improvement (QI) property A technical correction to the 2017 TCJA that designates QI Property as 15-year property for depreciation purposes. This makes QI Property eligible for 100% Bonus Depreciation. Effective for property placed in service after December 31, 2017.

If you would like additional information please contact your Gettry Marcus Advisor or Robin Rokuson, the author of this article.