Individual Tax Provisions
- Direct Payments
The CARES Act provides a $1,200 recovery rebate for individuals ($2,400 for joint taxpayers). The rebate phases out at adjusted gross income of $75,000 for singles, $122,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned. It phases out entirely at $99,000 for single taxpayers and $198,000 for joint taxpayers. Additionally, taxpayers with children will receive a flat $500 for each qualifying child. Rebates will be based on the filed tax year 2019 tax return (or tax year 2018 if a 2019 return has not yet been filed).
- Special Rules for Use of Retirement Account Funds
Taxpayers facing virus-related economic challenges may withdraw up to $100,000 from retirement accounts without facing penalty. The distributions may be made between January 1 and December 31, 2020. Income attributable to such distributions would be subject to tax over three years. The Act provides for taxpayers to restore any withdrawn funds without affecting retirement account caps.
- Waiver of RMD Distribution Rules
In general, RMDs are required annually once the owner reaches age 72. Required minimum distributions from defined contribution plans and IRAs in calendar year 2020 are temporarily waived. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.
- Enhanced Charitable Giving
Individuals receive a new $300 above-the-line deduction on charitable donations for filers taking the standard deduction and expands the limit on charitable contributions for those that itemize. The 50% of adjusted gross income limitation is suspended for 2020.
- Student Loan Payment Suspensions and Exclusions
Most Americans with federal student loans can suspend their monthly payments through September 30, 2020. Employers are also allowed to make tax-exempt contributions toward their workers’ student loan payments.
- Independent Contractors
Benefits and grants are extended to self-employed individuals who are unemployed, partially employed or unable to work because of Covid-19. The bill includes a $600-a-week increase on top of current levels of unemployment benefits for up to four months. Independent contractors also can apply for EIDL (Economic Injury Disaster Loan) funds.
- Unemployed Workers
Jobless benefits would be extended to 39 weeks from 26 weeks in most states, and includes a $600-a-week increase for up to four months with the bonus payment available through 7/31.
Business Tax Provisions
- Employee Retention Credit for Employers Affected by Closure or Economic Hardship
The Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers whose businesses were limited or closed by government orders. The credit is limited to $10,000 per employee for wages and compensation, including health benefits. Wages of furloughed employees or those that faced reduced hours as a result of their employers’ closure are eligible for the credit. For employers with 100 or fewer full-time employees, all employee wages are eligible, regardless of whether an employee is furloughed.
- Delayed Payment of the Employer Portion of Social Security Payroll Tax
The Act would allow employers (including the self-employed) to delay the payment of the employer portion of the Social Security payroll tax. Under current law, employers pay a 6.2 percent rate on covered employee payroll. Under the proposal, employers would owe half on Dec. 31, 2021 and the other half on Dec. 31, 2022.
- Changes to Business Interest Expense Limitations
The Tax Cuts & Jobs Act reduced the deductibility of interest to 30 percent of a firm’s adjusted taxable income. The CARES Act would allow businesses to increase the interest limitation to 50 percent of a firm’s adjusted taxable income for 2019 and 2020. There is also an election to use 2019 adjusted taxable income for taxable years beginning in 2020.
- Technical Corrections to Qualified Improvement Property Depreciation
The Act corrects an error in the TCJA to now allow interior improvements of buildings to be immediately expensed or depreciated over 15 years in the case of restaurant, retail and other property instead of having to depreciate those improvements over the life of the building.
- Limitations on Excess Business Losses are Delayed Until 2021
The bill modifies loss limitations for non-corporate taxpayers, retroactively turning off the excess active business loss limitation rule. It also turns off active farming loss rules for tax years beginning after December 31, 2017 and before December 31, 2020.
- Modification of Net Operating Losses
Businesses may carry back an NOL for taxable years beginning before 2021 to the prior five taxable years. The treatment of NOL carryforwards has also been modified. For tax years beginning before 2021, taxpayers will receive an NOL deduction equal to 100% of taxable income (rather than the 80% limitation in present law).
- Tax Credit Modifications for Prior Year Minimum Tax Liabilities for Corporations
The Act allows corporations to claim 100% of AMT credits in 2019 as fully refundable and provides an election to accelerate claims to 2018.