The CARES Act provides additional payroll tax credits, suspends certain excise taxes, and modifies certain provisions of the 2017 Tax Cuts and Jobs Act (“TCJA”). Each of the provisions provides relief designed to increase cash flow and liquidity to help businesses weather the pandemic.
Payroll Tax Relief
In addition to providing for an advance of the FFCRA payroll tax credit for emergency paid leave, the CARES Act also creates an employee retention credit for employers who have been forced to close or suspend their operations.
Employee Retention Payroll Tax Credit
The employer payroll tax credit is available for 50% of qualified wages (up to $10,000 in wages) per employee. An employer is eligible for the credit if the employer:
- Closes or partially suspends its operations because of COVID-19-related orders
- Experiences a 50% decline in gross receipts as compared to the same quarter last year
For employers with more than 100 full-time employees, eligible wages are those wages paid to employees who are not providing services for COVID-19 related reasons. For employers with 100 or fewer full-time employees, all wages paid will qualify for the credit whether the employer remains open for business or subject to a COVID-19 order.
Payment Deferral for Employer Payroll Taxes
Act permits employers to delay payment of the employer payroll tax due for the periods between March 27 and December 31, 2020. amount due after taking into account credits available under FFCRA and the CARES Act, will now be due 50% on December 31, 2021 with the remaining amounts due on December 31, 2022. Employers who receive loan forgiveness under the CARES Act are not eligible for the payment deferral. employer must still remit the employee portion of the payroll tax under the current deadlines.
Corporate Income Tax Relief
The CARES Act lifts some of the restrictions that had been imposed by the Tax Creation and Jobs Act. These measures are designed for businesses to seek refunds for prior credits, thereby increasing cash flow. Eligible taxpayers should review the impact of these provisions and consider filing amended returns and/or refund claims.
Immediate Refund of AMT Credits
The Tax Cuts and Jobs Act eliminated the corporate alternative minimum tax but permitted a credit to be taken on a taxpayer’s 2018-2021 returns. The AMT credits are now fully refundable in the 2018 tax year. Taxpayers may file a tentative claim for refund for these amounts. Treasury has been directed to process any such refund claims within 90 days.
Temporary Lift of Corporate NOL Limitations & 5-year Carryback
The Act rolls back the limitations on net operating loss carryovers for losses earned prior to 2021 and permits a 5-year carryback period of NOLs earned in 2018, 2019, or 2020. Taxpayers that had losses in 2018 and 2019 should consider filing carryback claims quickly and be prepared to file carryback claims in Q1 2021 for any losses for the 2020 tax period.
Losses for Non-Corporate Businesses
The Act repeals excess loss limitation rules with respect to business losses arising in 2018, 2019, and 2020. Specifically, pass-through businesses and sole proprietors, including farms, will now be able to take losses for these tax years even if their losses exceed $250,000.
Temporary Lift of Interest Limitations
The limitations on interest deductibility have been increased for the 2019 and 2020 tax years from 30% to 50% of EBITDA. In addition, a taxpayer may choose to use 2019 adjusted taxable income instead of 2020 when computing its limitation for the 2020 taxable year.
Expensing for Qualified Improvement Property
The Act includes a long-awaited fix to the TCJA by classifying “qualified improvement property” as 15-year property. As a result, qualified improvement property placed in service any time between September 27, 2017 and December 31, 2022 now is eligible for 100% bonus depreciation. Qualified improvement property includes interior improvements to nonresidential real property (but does not include enlargements of the building, any elevator or escalator, or improvements to the internal structural framework of the building).
