{ Federal Taxation | CARES Act }
Washington CARES Tax relief provided for businesses impacted by coronavirus pandemic
C By Jim Brandenburg, CPA, MST
ongress and the administration have been busy this year providing economic assistance to businesses, individuals and others impacted by the ongoing coronavirus pandemic. The largest legislation (to date) was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27. This historic legislation provided over $2 trillion in relief: the largest rescue package in U.S. history.
In most tax legislation, there are some changes that provide savings for taxpayers but other provisions that cause higher taxes for certain businesses and individuals. In the CARES Act, things were different, as the tax provisions in the bill were designed to provide liquidity and savings to businesses impacted by the pandemic. There were also several significant loan provisions in the CARES Act, most notably the Paycheck Protection Program (PPP). This article focuses on the tax measures, not the loan provisions. Here are several selected business tax incentives in the CARES Act:
Employee retention credit The CARES Act offers a refundable payroll tax credit of 50% of wages paid to employees during the coronavirus crisis. This tax credit is available to employers that (1) had their operations partially or fully suspended by the COVID-19 shutdown order or (2) experienced a drop of 50% or more in gross receipts compared with the prior year. The credit is based on wages paid to an organization’s employees and covers the first $10,000 of compensation, including health benefits, paid to an eligible employee. There are separate rules based on the size of the employer: • For employers with more than 100 full-time employees, qualified wages are wages paid to employees when the employer is impacted as described above by the coronavirus pandemic.
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• For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shutdown order. Tax-exempt organizations may also qualify for this employee retention credit. The credit is provided for wages paid or incurred from March 13, 2020, through Dec. 31, 2020. This credit presents opportunities for employers to recover part of their payroll costs if they meet the retention rules. The IRS provided detailed FAQ guidance of nearly 100 questions covering many aspects of this new credit on its website at this link: https:// www.irs.gov/newsroom/faqs-employee-retention-credit-underthe-cares-act.
Deferred payroll taxes The CARES Act also permits employers and self-employed individuals to defer payment of the employer’s share of the FICA tax of their employees (employers are responsible for paying a 6.2% FICA tax on employee wages). This deferral applies for the period March 27, 2020, through Dec. 31, 2020. The provision allows the deferred payroll tax in this period to be paid over the following two years. One half of the deferred tax would be paid by Dec. 31, 2021, and the other half by Dec. 31, 2022. Further, companies with a PPP loan that is forgiven are also able to use this payroll tax deferral provision. Here is the link to the IRS website for its FAQ on this payroll tax deferral: https://www.irs.gov/newsroom/deferral-of-employment-taxdeposits-and-payments-through-december-31-2020.
New limitation on excess individual losses changed You may recall that the Tax Cuts and Jobs Act (TCJA) of 2017 ushered in a new limitation on deducting losses for passthrough businesses and sole proprietors. This new provision started in 2018 and specified that taxpayers were limited to an overall $500,000 loss deduction per year. Any loss above this amount was carried over. CARES removes this new loss limitation, and thus the $500,000 cap does not apply for tax years 2018 through 2020. Several other modifications were made
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