The new COVID-19 law provides businesses with more relief - Crawford Ellenbogen

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.