Updated January 7 2021.
The Internal Revenue Service (IRS) has issued formal guidance and other information for CARES Act provisions related to individuals and businesses at: https://www.irs.gov/coronavirus
NOTE: For all tax provisions, interested enterprises should consult their tax professionals.
- Employee retention credit: The CARES Act included a provision that would provide a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, 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 percent reduction in quarterly receipts, measured on a year-over-year basis.
Wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or economic hardship 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. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in wages and compensation paid by the employer to an eligible employee. This credit is available through June 30, 2021.
- Payroll Tax Payment Extensions: This provision would allow taxpayers to defer paying the 6.2 percent employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of Federal Insurance Contributions Act (FICA) taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax (“self-employment tax”) liability.
- Immediate Expensing for Improving Qualified Improvement Property: Currently, these costs are required to be depreciated over the 39-year life of the building. The CARES Act amends the 2017 Tax Law to allow the interior improvements of buildings to be:
1.) Immediately expensed in the case of restaurant, retail, and most other property (classified as 15-year property), or;
2.) Depreciated over 20 years in the case of a real property trade or business.
The CARES Act makes this change retroactive to the 2017 Tax Law, which means that companies could amend prior years’ returns.
- Tax Credits for Employers for Coronavirus-Related Paid Leave: This provision would authorize the U.S. Treasury to provide advance payment of tax credits that are available to private sector employers that are required to provide up to 12 weeks of coronavirus-related paid leave to their employees.
- Single Employer Pension Plans: This provision would delay the required quarterly contributions for 2020 for single employer pension plans to the end of the year. The provision would also allow plans to use 2019 funded status for purposes of determining funding-based limits on plan benefits for plan years that include 2020.
- Modification of Net Operating Losses (NOLs): NOLs rules allow taxpayers that experience losses to deduct those losses from past taxes paid (a “carryback”) thereby receiving a refund of those taxes, or to deduct from income earned in a future year (a “carry forward”). The CARES Act modifies current law primarily by:
1.) Allowing taxpayers a five year carryback period for tax years beginning after December 31, 2017 and ending January 1, 2021 (calendar years 2018, 2019, and 2020), and;
2.) Allowing taxpayers to use NOLs to fully offset taxable income (current law limits this to 80 percent) for tax years beginning after December 31, 2017 and ending January 1, 2021 (calendar years 2018, 2019, and 2020).
- Modification of Limitation on Business Interest: Current law allows businesses to deduct business interest up to the sum of the taxpayer’s business interest income for the tax year, 30 percent of the taxpayer’s adjusted taxable income (ATI) for the tax year, and the taxpayer’s floor plan financing for the tax year. The CARES Act allows businesses to elect to deduct up to 50 percent of business interest for 2019 and 2020 rather than 30 percent and allows a taxpayer to elect to use their ATI from either their last tax year (beginning in 2019) or their ATI in the 2020 tax year.