Business Tax Relief Provisions in the CARES Act

by | Apr 7, 2020 | ASC 740, Federal Tax, Tax News | 0 comments

The CARES Act has much needed help for businesses in the form of opportunities to get cash now, tax credits, delays, fixes and changes. We’re helping businesses through the COVID-19 crisis with a free analysis of the tax benefits in the CARES Act. Contact us now for your CARES Act review at TaxOps.com. 

By Davinia Lyon

On Friday, March 27, the federal government passed the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES Act). The stimulus package is aimed at helping U.S. businesses and individuals with the economic fallout of COVID-19.

There are significant tax implications in the CARES Act for businesses impacted by COVID-19. The Act provides provisions for business loans and rolls back certain tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA) to cash flow businesses through the coronavirus pandemic. There are also opportunities for NOL carrybacks and other credits, including an employee retention credit. Some thresholds have also been raised to allow businesses to take advantage of more deductions and see significant tax savings. 

CARES Act benefits for businesses include the following.

Retention Credit. Certain employers, including a tax-exempt organization, whose businesses are disrupted by COVID-19 shutdowns or have seen a significant decrease in gross receipts when compared to the same quarter last year may be eligible for a fully refundable credit. The CARES Act provides a tax credit for 50% of qualified wages paid by employers to employees (including qualified health plan expenses), up to $10,000 per employee. This one-year credit against the employer’s share of social security payroll taxes is available to any business that “suspends” or closes its operations due to COVID-19, but continues to pay its employees during the shut-down. It also applies to those businesses that remain open but see gross receipts for any quarter in 2020 reduced by more than 50% from the same quarter in 2019. These businesses are eligible for the credit each quarter until the business has a quarter where its gross receipts exceed 80% of what they were for the same quarter in the previous year. Qualified wages are wages after March 12, 2020, and before January 1, 2021, and are defined separately by employee count.

  • For employers that averaged more than 100 employees during 2019, qualified wages are limited to wages paid for time the employee is not providing services due to business disruptions or a greater than 50% decline in year-over-year receipts.
  • For employers with 100 or fewer full-time employees in 2019, qualified wages include those wages paid to any employee due to business disruptions or a greater than 50% decline in year-over-year receipts.

Employers that take out a payroll protection loan are not eligible for the retention credit (details at IRS.gov.)

Employer Payroll Tax Delay. Employers are permitted to defer payment of the employer share of payroll tax, with half of the share owed by December 31, 2021, and the other half by December 31, 2022. (Sec. 2202 of the CARES Act.)

Qualified Improvement Property Fix. The CARES Act makes “qualified improvement property” eligible for bonus depreciation. This technical amendment defines qualified improvement property as 15-year property eligible for 100% of improvements to be deducted in the year incurred. Taxpayers can file amended returns to benefit from accelerated depreciation payments made after September 27, 2017, including 2018, and for 2019 on a return filed by July 15, 2020. (Sec. 2207 of the CARES Act.)

Net Operating Loss Rule Changes. Changes the rules governing net operating losses (NOLs) to allow businesses a five-year carry back on losses generated in 2018, 2019, and 2020; and, eliminates the 80% taxable income limitation under TCJA to allow businesses to use NOLs to fully offset taxable income arising before January 1, 2021 (Sec. 2203 of the CARES Act.)

Changes to Interest Limitation Rules. Increases the amount of business interest expense companies can deduct in 2019 and 2020 under Section 163(j) to 50% of adjusted taxable income for 2019 and 2020. Businesses without taxable income in 2020 can use their 2019 adjusted taxable income in computing their 2020 limitation (Sec. 2206 of the CARES Act.)

AMT Refund. A corporation may receive AMT credit refunds in tax years beginning 2019 or may possibly elect to claim the entire refund on their 2018 return if not filed.

Companies struggling to offset the significant impact of the coronavirus can benefit from stimulus measures in the CARES Act. Contact us to see where the CARES Act can provide much needed cash flow and tax relief benefits at TaxOps.com.

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Davinia Lyon, partner in corporate and income tax planning, can be reached at dlyon@taxops.com.

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