SS+D COVID-19 Response Team: Summary of Tax Benefits Available to Businesses Under the Cares Act March 30, 2020
March 31, 2020 | Sebaly Shillito + Dyer
The CARES Act provides important benefits for businesses. Some of those benefits are provided below. If you have questions about specific benefits available under the CARES Act, please reach out to us.
PAYROLL TAX CREDIT
Businesses can suspend the due date for depositing employer payroll taxes and 50% of self-employment taxes related to Social Security and Railroad Retirement for wages paid during 2020, with 50% due December 31, 2021, and the remainder due December 31, 2022.
EMPLOYEE RETENTION TAX CREDIT
Eligible businesses can receive a tax credit of 50% of qualified wages paid after March 13, 2020, and before January 1, 2021. For additional information regarding Employee Retention Tax Credits, please refer to our updated titled Employee Retention Payroll Tax Credits under the CARES Act.
EMPLOYER FUNDED STUDENT DEBT RELIEF
The CARES Act allows employers to contribute up to $5,250 annually toward an employee’s student loans, and the payment would be excluded from the employee’s income. The new law applies to payments made toward an employee’s student loans before January 1, 2021.
MODIFICATIONS TO NET OPERATING LOSS
Prior to the CARES Act, net operating losses (NOLs) could not be carried back to prior years and could only be carried forward (with very limited exceptions). The CARES Act provides a 5-year carryback of NOLs—meaning losses arising in the 2018, 2019, or 2020 tax years can be “carried back” to each of the five tax years preceding the tax year of such loss.
This is particularly important to assist businesses anticipating a NOL in 2020 as a result of the COVID-19 pandemic. If those businesses were profitable in any of the prior five years, then they can “carryback” their 2020 loss to the prior profitable years and obtain a refund of previously paid taxes for the profitable years.
In addition, the CARES Act allows net operating losses to be offset up to 100%, rather than 80%, of a taxpayer’s taxable income in future years. This temporary change generally applies to tax years beginning in 2018 through 2021.
INCREASE IN BUSINESS INTEREST DEDUCTION
A net business interest deduction limitation has been increased from 30% to 50% of adjusted taxable income for 2019 and 2020. Taxpayers can also use their 2019 adjusted taxable income as the base for computing the 2020 limitation, rather than using their 2020 adjustable taxable income.
As a practical matter, businesses that borrow in 2020 in connection with the COVID-19 pandemic will be able to offset a larger portion (50%) of their 2020 taxable income with business interest expense deductions.
QUALIFIED IMPROVEMENT PROPERTY ELIGIBLE FOR BONUS DEPRECIATION
The depreciation rules have been modified by the CARES Act with regards to qualified improvement property. Qualified improvement property refers to improvements made to the interior of a commercial building. Businesses can instantly write off costs associated with qualified improvement property that was acquired after September 28, 2017, and before January 1, 2023.
FEDERAL EXCISE TAX WAIVER
The CARES Act waives the federal excise tax on distilled spirits used in hand sanitizers, as a way to provide support to distilleries who started producing hand sanitizer due to the shortage caused by COVID-19.
ALTERNATIVE MINIMUM TAX CREDIT
Corporate alternative minimum tax credits are now fully refundable starting in 2019. Corporations can opt to claim the entire refundable credit amount. The IRS is required to process any refund claims within 90 days of filing.
ABOUT THE SS+D COVID-19 RESPONSE TEAM
The SS+D COVID-19 Response Team was formed to provide clients, colleagues, and friends of the Firm updates for the foreseeable future on COVID-19 issues facing businesses, executives, and employees. Please let us know if there are any items/issues you would like for us to track or summarize.