CARES Act Tax Relief Provisions and IRS Guidance

Published 3.31.2020. Updated 4.21.2020.

On March 27, 2020, President Trump signed into law the third coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Additionally, the Treasury Department and the IRS have announced special federal income tax filing and payment relief in response to the coronavirus disease. Below is a summary of some of the important tax relief provisions in CARES Act and IRS guidance.

Extension of Tax Deadlines

The due date for federal income, gift and generation-skipping transfer tax returns and payments has been extended for all taxpayers from April 15, 2020 until July 15, 2020. Additionally, estimated federal income taxes originally due on April 15, 2020 for the taxpayer’s 2020 tax year are extended to July 15, 2020. Interest and penalties will begin accruing on all amounts not yet paid on July 16, 2020. Estimated taxes due on June 15 have not yet been extended. This extension to July 15 also applies to contributions to an IRA, HSA or Archer MSA for 2019.

As of this writing, Ohio, Kentucky, Illinois, and Indiana have all made changes to due dates. Taxpayers should verify their due dates with their respective states and municipalities, and ensure the extension applies to both filing and payment and is a waiver of both interest and penalties.

UPDATE: The IRS has released additional guidance providing additional relief to taxpayers. Please check the Coronavirus FAQ for additional information.

Recovery Rebates for Individuals

Qualifying individuals will receive cash payments of up to $1,200 ($2,400 in the case couples filing a joint return) plus $500 for each of their qualifying children. Qualifying individuals are individuals other than nonresident aliens, dependents of other taxpayers or estates and trusts. The payment is reduced for taxpayers earning income in excess of certain thresholds - $75,000 for single and married filing separate status, $112,500 for head of household, and $150,000 in the case of a joint return – and fully phased out for taxpayers with adjusted gross income in excess of $99,000, 136,500 and $198,000, respectively. These thresholds will be based on the 2019 federal income tax return if filed, or in the alternative, the 2018 return.

Suspension of Required Minimum Distribution Rules

The CARES Act suspends required minimum distributions for certain defined contribution plans and IRAs for calendar year 2020.

Charitable Contribution Changes

For tax years beginning in 2020, individuals may deduct up to $300 for cash contributions to most charitable organizations whether or not they itemize deductions. Additionally, the 50% adjusted gross income limitation on the deduction of cash contributions to most charitable organizations by individuals is suspended for 2020, and the taxable income limit for corporations is increased from 10% to 25% for cash contributions during 2020. The taxable income limitation for deductions for contributions of food inventory to a charitable organization is also increased from 10% to 25% for 2020 for individuals and corporations.

Employee Retention Payroll Tax Credit for Employers Subject to closure due to COVID-19

Eligible employers are allowed a refundable credit against social security taxes for each calendar quarter, in an amount equal to 50 percent of the qualified wages paid to each employee for such calendar quarter.

An “eligible employer” is any employer which is carrying on a trade or business during calendar year 2020 that, with respect to any calendar quarter, is fully or partially shut down due to a government order or experiences a significant decline in gross receipts, defined as gross receipts less than 50 percent of the gross receipts for the same calendar quarter in the previous year.

For an employer with more than 100 employees, wages are qualifying wages if paid to an employee who is not providing services due to a mandatory shutdown or significant decline in gross receipts. For an employer with less than 100 employees, wages are qualifying wages if paid to an employee during a mandatory shutdown or significant decline in gross receipts, regardless of whether or not the employee is providing services. The wages taken into account with respect to any employee for purposes of calculating the credit cannot exceed $10,000 in the aggregate for all quarters.

Employers that receive an SBA small business interruption loan are not eligible for this credit. Additionally, employers are prevented from doubling up on tax credits for the same wages.

Payroll Tax Payment Extension

Employers and self-employed individuals who do not have an SBA small business interruption loan forgiven (see Senate Passes CARES Act, Which Includes $349 Billion for SBA Guarantees of Forgivable Loans for Small and Medium Sized Businesses)  are eligible for an extension of time to make payment of the 6.2% employer portion of social security tax. Payment of 50% of the amount of social security tax owed for the period ending December 31, 2020 is due by December 31, 2021 and 50% is due by December 31, 2022.

Modification of NOL Provisions

The 80% taxable income limitation on the deductibility of net operating losses is suspended for tax years beginning prior to January 1, 2021. Net operating losses arising in any taxable year beginning after December 31, 2017 and before January 1, 2021, which previously could not be carried back to reduce income in a prior year, can be carried back 5 years.

Removal of loss limitations for non-corporate Taxpayers

The limitation on excess business losses is removed for tax years beginning before December 31, 2020, and the limitation on excess farm losses does not apply to tax years beginning after December 31, 2017 and before January 1, 2026.

Acceleration of Corporate AMT Credits

Corporations with credit carryovers from payment of alternative minimum tax in prior years can fully utilize those credit carryovers in 2018 and 2019. 

Modification of 163(j) Interest Deduction Limitation

Generally, the business interest deduction limitation under Sec. 163(j) is increased from 30% of adjusted taxable income to 50% of adjusted taxable income for tax years beginning in 2019 and 2020. Additionally, taxpayers can use their 2019 adjusted taxable income for purposes of calculating the interest limitation in 2020. Separate calculations to alleviate the burden of 163(j) apply for partnerships.

Retail Glitch Fix

Congress fixed a widely recognized drafting error from the Tax Cuts and Jobs Act of 2017 that left certain qualified improvement property with a 39-year depreciable life, and excluded the property from being eligible for 100% bonus depreciation. The correction assigns a 15 year life to certain qualified improvement property, and now makes it eligible for bonus depreciation. The change is applicable for property placed in service after December 31, 2017.

KMK Law attorneys are here to provide you with advice and guidance in connection with these provisions.  

Zachary T. Gubser
513.579.6474
zgubser@kmklaw.com 

Margaret G. Kubicki
513.579.6913
mkubicki@kmklaw.com 

Mark E. Sims
513.579.6966
msims@kmklaw.com