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CARES Act: Need to Know Individual and Business Tax Provisions

Filed under:

COVID Updates, Tax Strategies

The CARES Act was enacted on March 27th, 2020 and includes many tax provisions that will benefit both individual and business taxpayers. Below is a summary of many of the key provisions.

Click here for easy to print PDFs of the tax provisions:

Business Tax Provisions

Employee Retention Credit

BENEFIT: Refundable payroll tax credit for 50% of wages paid by eligible employer to certain employees during the COVID-19 crisis.

  • Eligible employers are those (including non-profits) whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
  • The credit is not available to those employers that received funds from the Paycheck Protection Program (PPP) under Sec. 1102 of the Act.
  • Wages include health benefits and is capped at the first $10,000 in wages paid.
  • All employee wages are eligible for employers with average full-time employees in 2019 of 100 or fewer, regardless of whether the employee is furloughed. For employers who had more than 100 average FTE, only the wages of employees who are furloughed will be eligible for the credit.

Qualified Improvement Property (QIP)

BENEFIT: Depreciable life for QIP is 15 years

With the correction of QIP tax life to 15 years it allows taxpayers to utilize 100% cost recovery in the first year of acquisition.

Business Interest Expense

BENEFIT: Taxable income threshold reduced for 2019 and 2020.

Taxable income threshold reduced for Section 163(j) limit on business interest expense from 30% to 50% for tax years beginning in 2019 and 2020.

Corporate AMT

BENEFIT: Corporate AMT Refundable

Corporations can claim a refund for all remaining AMT credits in 2018 and 2019.

Employer Social Security Tax

BENEFIT: Suspended Payment Requirements

Suspending payment requirements for the 6.2% employer portion of Social Security taxes from March 25, 2020 through the end of 2020. Half of the balance is due by the end of 2021, and the other half due by the end of 2022.

Charitable Deductions

BENEFIT: Increased Deduction Limits

For 2020, taxable income limit on corporate charitable deductions increased from 10% to 25% and contributions of food inventory from 15% to 25%.

Business Loss Deduction

BENEFIT: Suspended Limit on Excess Business Loss Deduction

Suspending the limit on excess business loss deduction for 2018, 2019, and 2020.

Net operating loss (NOL)

BENEFIT: NOL carryback allowed

NOL arising in 2018, 2019 and 2020 can be carried back five years and suspending the 80% taxable income limit.

Individual Tax Provisions

Net operating loss (NOL)

BENEFIT: NOL carryback allowed.

NOL arising in 2018, 2019 and 2020 can be carried back five years and suspending the 80% taxable income limit.

Individual Rebate Checks

BENEFIT: Refundable tax credit or rebate available to individuals.

  • Each filing individual is eligible for a $1,200 tax credit ($2,400 per joint couple). An additional $500 tax credit is available per qualifying child. The credit begins to phase out when adjusted gross income (AGI) exceeds $75,000 (single), $112,500 (head of household), and $150,000 (joint).
  • The credit is based on the 2020 return, but an advance payment of the credit is available and will be determined based on the AGI of 2019 (or 2018 if 2019 has not yet been filed).
  • The credit will be reduced by 5% of the amount over the AGI threshold. For a joint filing couple with no children, the credit is fully phased out at $198,000. Here is how the math works; Credit amount of $2,400 minus the amount over the threshold makes the credit amount zero. ($198,000 – $150,000) x 5% = $2,400 and the amount of the credit reduction.

Retirement Plan Withdrawals

BENEFIT: Waiver of Penalty on Retirement Plan Withdrawal.

Waiving early withdrawal penalties for up to $100,000 in COVID-19-related withdrawals from qualified retirement accounts, and allowing it to paid back or included ratably in income over three years.

Required Minimum Distributions (RMD)

BENEFIT: No RMD for 2020

Suspending required minimum distributions for 2020

Retirement Account Loans

BENEFIT: Retirement Account Loans Double

Maximum amount a taxpayer can borrow increased to $100,000.

Charitable Contributions

BENEFIT: Deduction Allowed Before AGI

Allowing an above-the-line deduction for up to $300 in charitable contributions for taxpayers who do not itemize deductions in 2020.

Health Savings & Flexible Spending Accounts

BENEFIT: New items allowed for FSAs and HSAs.

Permanently restoring the ability for taxpayers to use HSAs and FSAs to purchase “over-the-counter” medicine.

You should consult with you tax advisor as to whether any of the tax provisions from the CARES Act apply to you and your business.

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