Please Note - the included information is for summary purposes, please get in touch with us or check with your tax advisor prior to relying on this information.
Individual Recovery Rebate / Credit (Individual Stimulus Funds)
Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of $1,200 ($2,400 for married filing joint) plus $500 for each qualifying child (as defined under Code Sec 24(c) relating to the child tax credit). Individuals other than dependents or nonresident aliens are eligible for the credit. The IRS will issue refunds to eligible individuals early (as soon as possible) based upon 2019 (or 2018) tax filings. The amount of the advance repayment issued to an individual reduces the credit available on the 2020 income tax return.
No 10% Additional Tax on Coronavirus Retirement Distributions
The new CARES act provides that distributions of up to $100,000 from a qualified retirement plan are not subject to the 10% additional tax. A coronavirus-related distribution is any distribution made during 2020 from an eligible retirement plan to a qualified individual. A qualified individual is one who is diagnosed with the virus, whose spouse or dependent is diagnosed, or who experiences adverse financial consequences from being quarantined, laid off or reduced work hours as a result of the virus. The taxable income related to the distribution is automatically spread over a three year period starting with the tax year of the distribution.
No RMD Required in 2020
Under the CARES act, required minimum distributions do not apply for 2020 for defined contribution plans (ex 403(a) and 403(b)), a defined contribution plan under 457(b), and individual retirement plans.
Above the Line Deduction for Charitable Donations
Individuals who elect not to itemize in 2020 can take a deduction against their gross income for an amount not to exceed $300 for cash donations to qualified charitable organizations.
No Limitation on Individual Charitable Donations
The CARES act removes the 60% limit on cash charitable donations to qualified charitable organizations for individuals who elects to apply the provision in 2020. This could allow individuals who were disallowed charitable deductions in years past due to income limitations to deduct charitable donation carry-forwards in 2020.
Tax-Excluded Education Payments by Employer Temporarily Include Student Loan Repayments
The Act adds to the types of educational payments that are excluded from an employee's gross income, eligible student loan repayments (limited to $5,250 per employee for all educational payments). Eligible loan repayments are made by the employer to the employee or lender, for principle or interest on any qualified higher education loan.
Employee Retention Credit
The provision provides a refundable payroll tax credit for 50% of wages paid by an eligible employer to certain employees during the COVID-19 crisis. Employers eligible for the credit include those whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings, or those who have experienced a greater than 50% reduction in quarterly receipts (year over year). For employers with 100 or fewer employees, all wages are eligible for the credit, regardless of whether the employee is furloughed.
Delay of Payment of Employer Payroll Taxes
Under the CARES act, the due date for the employer's portion of payroll tax (Social Security and Medicare) for the period beginning on the date of the enactment of this bill through January 1, 2021, is deferred until December 31, 2021. Half of the payroll tax deferred during said period is due December 31, 2021, with the remaining half due December 31, 2022.
Temporary Repeal of the Taxable Income Limit for NOLs and Modification of Carryback
The CARES act removes (temporarily) the taxable income limitation to allow an NOL to fully offset income. The amendments made apply to tax years beginning after December 31, 2017 and to tax years beginning on or before December 31, 2017 to which NOL's arising in tax years after December 31, 2017 are carried.
The act also provides that NOLs arising in tax years beginning after December 31, 2018 and before January 1, 2021 can be carried back to each of the five preceding tax years of such loss.
Bonus Depreciation for Qualified Improvement Property
A technical correction was provided in the CARES act which designates QI Property as 15-year property for depreciation purposes, making the property eligible for 100% bonus depreciation. The amendments are effective for property placed in service after December 31, 2017.
Paid Sick Leave for Workers Required for COVID 19
The Emergency Family and Medical Leave Act, part of the CARES act, was passed into legislation March 18th, 2020, provides employers with less than 500 employees to provide up to 80 hours of paid sick leave (at 100% of the employee's pay) to employees who are sick, quarantined, experiencing symptoms or seeking a diagnosis related to COVID 19. Note, there are exemptions for employers with less than 50 employees. An employee who is unable to work because of a need to care for an individual subject to quarantine, care for a child whose school or child care provider are unavailable due to COVID 19, are also eligible for up to 80 hours of paid sick leave (at 2/3rd of the employee's pay).
The Act also created a refundable payroll tax credit for employers who are required to provide paid sick leave under the act. The credit for paid sick leave is 100% of the employee's pay, up to $511 per day or $5,110 in the aggregate, for a total of 10 days. For an employee caring for someone with the coronavirus, or caring for a child whose school or child care is closed due to coronavirus, the credit is available for up to 2/3rds of the employee's pay, up to $200 per day or $2,000 in the aggregate, for up to 10 days.
The employer who pays qualifying sick or child care leave can retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, subject to the above mentioned limitations, rather than deposit them with the IRS. If there are not sufficient payroll taxes to cover the cost of the qualified sick and child care leave paid, employers will be able to request an accelerated payment from the IRS.
Emergency Family and Medical Leave Expansion Act
Similar to the Sick Leave Act, this act requires employers with fewer than 500 employees to provide both paid and unpaid public health emergency leave to employees through December 31, 2020. The emergency leave is available to employees who have been employed for at least 30 days, but is unable to work due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or childcare provider is unavailable due to an emergency with respect to COVID-19 that is declared by a federal, state or local authority.
The first ten days of leave may be unpaid and then paid leave (not less than 2/3rds the employee's regular rate) is required. The leave is based on the number of hours the employee would otherwise be normally scheduled to work, but not to exceed $200 per day and $10,000 in total. The credit is taken in a similar fashion as the Paid Sick Leave credits mentioned above.
Small Business Admin Loans - Payroll Protection Program
Covered loans guaranteed under 7(a)(36) of the SBA, are eligible to be forgiven at the end of an 8 week period, starting on the date of the loan origination date, if proceeds were used for eligible costs (Payroll, mortgage interest, rent, and utilities).
The eligible amount available for a covered loan is based upon 250% of the employer's average monthly payroll cost during the twelve months prior to application. The portion eligible to be forgiven is equal to the amount of proceeds used for eligible costs as mentioned above.