Business and Individual Tax Provisions of the CARES Act

The federal government’s efforts to relieve some of the financial pain brought on by the COVID-19 pandemic includes passage of the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which was signed into law by the president today.

Like many pieces of federal legislation, the Act is a massive document with a lot to digest, but here are some of the key forms of tax relief it offers to businesses and individuals:

For Businesses

  • Allows qualifying employers a 50% refundable payroll tax credit on qualifying compensation paid to employees after March 12, 2020 and before January 1, 2021. Compensation is capped at $10,000 per eligible employee.
  • Delayed payment of the employer’s share of Social Security tax through the end of 2020.
  • Allows C-corporations to take net operating losses (NOLs) incurred in the years beginning after December 31, 2017 and before January 1, 2021 and carry them back 5 years.
  • Temporary repeal of the 80% taxable income limitation for NOLs (net operating losses).
  • Accelerated recovery of AMT (alternative minimum tax) credits for C-corporations.
  • Increase in the interest expense limitation from 30% to 50% of adjusted taxable income for the years 2019 and 2020.
  • Change to the recovery period for certain real estate improvements, known as qualified improvement property (QIP), from 39-year to 15-year property. This makes QIP eligible for bonus depreciation which currently allows for immediate expensing.
  • Temporary suspension of the excise tax for alcohol used to produce hand sanitizer through December 31, 2020.

For Individuals

  • Recovery rebate checks equal to $1,200 per U.S. resident and $500 per qualifying child will be provided. The rebates are subject to income limitations.
  • Coronavirus-related distributions of up to $100,000 from qualified retirement accounts are permitted. The distributions won’t be subject to the 10% early withdrawal penalty but will be subject to income tax according to special provisions.
  • Required minimum distributions from eligible retirement plans aren’t required for 2020.
  • Taxpayer will be permitted to deduct up to $300 of charitable contributions regardless of whether they claim the standard deduction or itemize.
  • The adjusted gross income limitation that typically applies to charitable contributions is suspended for cash contributions made in 2020.
  • Employers can repay up to $5,250 of an employee’s student loans in 2020. The payments will not be included in the employee’s income.

Next Steps

This information is intended as a high-level summary. We are combing the CARES Act and conferring with a range of experts to learn how the new law applies to a variety of situations. For details on how the CARES Act might help you or your business, call your Sol Schwartz & Associates professional at 210.384.8000 to discuss how you can take full advantage of the law’s provisions.

FURTHER READING:

National Law Review: IRS extends deadline for SECURE and CARES Act Amendments