The New COVID-19 Law Provides Businesses with More Relief

On March 27, President Trump signed into law another coronavirus (COVID-19) law, which provides extensive relief for businesses and employers. Here are some of the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Employee retention credit

The new law provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.

Employer eligibility. The credit is available to employers with operations that 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 that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.

The credit isn’t available to employers receiving Small Business Interruption Loans under the new law.

Wage eligibility. For employers with an average of 100 or fewer full-time employees in 2019, all employee wages are eligible, regardless of whether an employee is furloughed. For employers with more than 100 full-time employees last year, only the wages of furloughed employees or those with reduced hours as a result of closure or reduced gross receipts are eligible for the credit.

No credit is available with respect to an employee for whom the employer claims a Work Opportunity Tax Credit.

The term “wages” includes health benefits and is capped at the first $10,000 paid by an employer to an eligible employee. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Payroll and self-employment tax payment delay

Employers must withhold Social Security taxes from wages paid to employees. Self-employed individuals are subject to self-employment tax.

The CARES Act allows eligible taxpayers to defer paying the employer portion of Social Security taxes through December 31, 2020. Instead, employers can pay 50% of the amounts by December 31, 2021 and the remaining 50% by December 31, 2022.

Self-employed people receive similar relief under the law.

Temporary repeal of taxable income limit for NOLs

Currently, the net operating loss (NOL) deduction is equal to the lesser of 1) the aggregate of the NOL carryovers and NOL carrybacks, or 2) 80% of taxable income computed without regard to the deduction allowed. In other words, NOLs are generally subject to a taxable-income limit and can’t fully offset income.

The CARES Act temporarily removes the taxable income limit to allow an NOL to fully offset income. The new law also modifies the rules related to NOL carrybacks.

Interest expense deduction temporarily increased

The Tax Cuts and Jobs Act (TCJA) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income.

The CARES Act temporarily and retroactively increases the limit on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020. There are special rules for partnerships.

Bonus depreciation for qualified improvement property

The TCJA amended the tax code to allow 100% additional first-year bonus depreciation deductions for certain qualified property. The TCJA eliminated definitions for 1) qualified leasehold improvement property, 2) qualified restaurant property, and 3) qualified retail improvement property. It replaced them with one category called qualified improvement property (QIP). A general 15-year recovery period was intended to have been provided for QIP. However, that period failed to be reflected in the language of the TCJA. Therefore, under the TCJA, QIP falls into the 39-year recovery period for nonresidential rental property, making it ineligible for 100% bonus depreciation.

The CARES Act provides a technical correction to the TCJA, and specifically designates QIP as 15-year property for depreciation purposes. This makes QIP eligible for 100% bonus depreciation. The provision is effective for property placed in service after December 31, 2017.

Careful planning required

This article only explains some of the relief available to businesses. Additional relief is provided to individuals. Be aware that other rules and limits may apply to the tax breaks described here. Contact us if you have questions about your situation.

© 2020

  248 Hits

Keeping American Workers Paid and Employed Act

Paycheck Protection Program (Loans)

The CARES Act bill includes language to provide small businesses the 'Paycheck Protection Program', which would provide cash-flow assistance to eligible businesses to help pay operational costs like payroll, rent, health benefits, insurance premiums, utilities, etc. during this emergency. This would be accomplished through a government-guaranteed small business (SBA) loan program with relaxed terms and the possibility of loan forgiveness according to stipulated criteria.

Who Qualifies?

Under this provision, a small business, 501(c)(3) nonprofit, or a 501(c)(19) veteran's organization could qualify, provided it does not have more than 500 employees, or has a number of employees consistent with the applicable size standard for the industry per the Small Business Act. The provision includes sole-proprietors, independent contractors, and other self-employed individuals as parties eligible for the loan program. Businesses in the hospitality and dining industries with more than one physical location that employ no more than 500 employees per physical location in the "accommodation and food services" sector are eligible, but must not exceed a gross annual receipts threshold. Organizations must make a good faith certification that the uncertainty of current economic conditions makes it necessary for the loan request to support ongoing operations. Furthermore, the organization must acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.

What is the covered loan period?

The covered loan period is February 15, 2020 through June 30, 2020.

What are the loan terms and amounts?

The provision establishes the loan amount based on a formula of the average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5, up to a maximum amount of $10 million. Repayment of the loan is up to 10 years; however lenders are required to defer payment of principal, interest and fees for a period of at least 6 months, but not exceeding one year. The government guarantee of loans made is increased to 100 percent through December 31, 2020, at which point the guarantee percentage returns to 75 percent for loans exceeding $150,000 and 85 percent for loans equal to or less than $150,000.

What are the allowable uses?

Under the provision, loans are eligible to be used for payroll support, including employee salaries (which includes compensation to sole proprietors and independent contractors), paid sick or medical leave, insurance premiums, mortgage, rent and utility payments. Employee salaries, commissions and tips may not exceed $100,000 on an annual basis per employee or $45,000 for the covered period.

What are the associated costs?

There is no fee to the borrower and the provision sets a maximum interest rate of four percent. In addition, the provision ensures borrowers are not charged any prepayment fees. No collateral or personal guarantee is permitted to be required for a loan.

What is the loan forgiveness?

Recipients are eligible for forgiveness of the loan in an amount equal to the sum of payroll costs, interest payments on mortgage obligations, rent and utilities incurred during the covered period. Forgiveness will not exceed the loan principal amount. The amount of loan forgiveness will be reduced in accordance with any reduction in the number of employees or employee salaries during the covered period.

  364 Hits

Recovery Rebates

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which passed the Senate by a 96-0 vote late Wednesday, provides for a one-time payment to taxpayers - "recovery rebates" - which will be treated as advance refunds of a 2020 tax credit. The House will vote on the Act Friday and, once approved, forward it to the President for signature into law.

How much?

Under this provision, individuals will receive a tax credit payment of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child (16 years of age or younger). The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for singles. Taxpayers with AGI above $198,000 (for joint filers with no children) and $99,000 for singles with no children would not be eligible for the payment. The credit is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts.

How is it determined?

The IRS will look at your 2019 tax return for your filing status, AGI, and information about your children. If you haven't filed your 2019 return, the IRS will look to your 2018 return. If your income was below filing requirements and a return wasn't filed for 2018 or 2019 it isn't known yet if you will get a check. If this is the case, you may want to file a 2019 tax return. It is possible that the IRS will look to social security records for 2019 income if a return was not filed.

How is it paid?

If you have had your tax refunds directly deposited into your bank account the IRS has your bank account information and your rebate payment will be directly deposited into your bank account.  If the IRS does not have your banking information, or if that information is no longer valid, a check will be issued.

When will I receive it?

Payments are expected by mid-May.

Tax treatment?

The payment is to be an advance payment of a tax credit for the 2020 tax year. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive. Conversely, if you were eligible for the payment, but did not get it, you will be able to recover it when your 2020 tax return is filed. Overpayments of rebates due to a higher income in 2020 will not be clawed back.

Do young adults get payments?

Young adults (children 17 to 19 years of age, or under age 24 if a full time student) still living at home will not get a check if they can be claimed as a dependent on someone's return.

  574 Hits

Families First Coronavirus Response Act

The President has signed the Families First Coronavirus Response Act (FFCRA), intended to ease the economic consequences stemming from the novel coronavirus disease (COVID-19) outbreak by providing family and medical leave, and sick leave, to employees and providing tax credits to employers and self-employeds providing the leave. Here are details:

Emergency paid sick time under the Emergency Paid Sick Leave Act (EPSLA):

Requires employers with fewer than 500* Eligible Employees (regardless of the employee's length of employment) to provide full-time employees up to two weeks of paid sick time (part-time employees are entitled to sick time based on their average hours worked over a 2-week period) to the extent that the employee is unable to work or telework due to: 

Employee Situation

Employee Benefit

  • The employee is subject quarantine or isolation order related to COVID-19; OR

Eligible Employee may receive 100% of their full pay or up to a maximum of $511 per day.

($5,110 total)

  • The employee has been advised by a health care provider to self-quarantine related to COVID-19; OR        
  • The employee is experiencing symptoms and seeking a medical diagnosis related to COVID-19.
  • The employee is caring for an individual who is affected by one of the three categories above; OR

Eligible Employee may receive up to 2/3 of their pay or up to a maximum of $200 per day.

($2,000 total)

  • The employee is caring for a son or daughter whose school is closed or child care provider is unavailable due to COVID-19 precautions;


  • The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

  • Employers cannot require employees to find a replacement worker or use other sick leave before this sick time.
  • Employers may exclude health care providers and emergency responders.
  • The sick leave mandate takes effect not later than 15 days after March 18, 2020 (the date of the Act's enactment) and expires December 31, 2020.

*There may be an exemption for certain employers with fewer than 50 employees, but details have not yet been provided by the Department of Labor.

Family and medical leave under the Emergency Family and Medical Leave Expansion Act (EFMLEA): 

Requires employers with fewer than 500* Eligible Employees (employees employed for at least 30 days) to provide full-time employees up to ten weeks of paid sick time (Part-time employees are entitled to sick time based on their average hours worked over a 2-week period) to the extent that the employee is unable to work or telework through December 31, 2020 to:

Employee Situation

Employee Eligibility

An employee is unable to work or telework 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 a 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 10 days of the employee's leave may consist of unpaid leave, after which paid leave is required to a maximum of 10 weeks. The paid leave is calculated based on an amount not less than two-thirds of an employee's regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate.

Employer Tax Credit:

Employers are eligible for a credit of social security taxes for any paid sick leave or family leave, along with any additional qualified health plan expenses incurred as a result of the leave.  To the extent the wages plus any additional qualified health plan expenses incurred exceed the social security taxes, the employer may be eligible for a refundable overpayment.  Employers don't receive the credit if they're also receiving the credit for paid family and medical leave.  The exact timing of when this is effective is not yet published, so it is unclear if the benefit can be claimed on 2020 first quarter filings.

Self-Employed Individuals

The Act also provides for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual's sick-leave equivalent amount, or 67% of the individual's sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child's school closing for up to 10 days. The sick-leave equivalent amount is the lesser of average daily self-employment income or either (1) $511/day to care for the self-employed individual or (2) $200/day to care for a sick family member or child following a school closing, paid under the EPSLA.

As always, please consult a professional if you have any concern over your compliance with this new law.

  399 Hits

Tax Deadline Extended IRS Notice 2020-18

We finally received some additional reprieve from the Federal government.  The Treasury Department and Internal Revenue Service announced on Saturday that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

As we mentioned in our letter last week, taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest (IRS Notice 2020-17).  That notice only extended the payment date of amounts owed by individuals of $1 million or less in the aggregate and $10 million or less in the aggregate owed by corporations from April 15, 2020 to July 15, 2020.  This new notice removes the dollar limit previously stated under Notice 2020-17 and makes the relief available regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

"Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically," said IRS Commissioner Chuck Rettig. "Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I'm incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment."

As we reiterated in our first letter on this topic, this extension of time to file and time to pay is for federal returns and payments only. Some states have followed suit, including Iowa (which has extended the April filing and payment date to July 31, 2020), but we have not received any notice that the State of Nebraska will be automatically extending the due date or payment date.  Additionally, the Treasury and the IRS have made no mention of extending the second quarter individual estimated tax payment for 2020, which is due June 15, 2020. We will continue to keep you posted as we receive more information.

As always, feel free to contact us if you have any questions.

  563 Hits