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Federal Tax Changes Under CARES Act

While the following tax credit, payment delay and other programs recently instituted by the federal government’s (CARES) Act may not resolve all the financial hardships stemming from the novel coronavirus crisis, for many businesses they can serve as a bright light during these dark days.

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While the following tax credit, payment delay and other programs recently instituted by the federal government’s (CARES) Act may not resolve all the financial hardships stemming from the novel coronavirus crisis, for many businesses they can serve as a bright light during these dark days.

It has been a while since good news eclipsed – or was even on the same level of – the bad news. While the following tax credit, payment delay and other programs recently instituted by the federal government’s Coronavirus, Aid, Relief and Economic Security (CARES) Act may not resolve all the financial hardships stemming from the novel coronavirus crisis, for many businesses they can serve as a bright light during these dark days.

Employee Retention Credit

This program, launched by the Treasury Department and the IRS, is designed to encourage businesses to keep employees on their payroll.  The refundable credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.  To qualify, a business must fall into one of two categories: 1) the employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter, or 2) the employer’s gross receipts are below 50% of the comparable quarter in 2019.  For more information, visit the coronavirus page at www.IRS.gov. It is important to note that taxpayers who have received a loan under the Paycheck Protection Program (PPP) are not eligible for this credit. Thus, the program serves as an important backstop for those not receiving or ineligible for a PPP loan.

Delay of Payment of Employer Payroll Taxes

Small business owners typically collect 6.2% of employees’ wages for Social Security Tax as part of FICA withholdings up to a maximum wage base limit, then match each employee’s contribution dollar-for-dollar as part of payroll taxes. Under the CARES Act, employers (and self-employed individuals) can delay paying their portion of that Social Security payroll tax.  Deferred payments are optional; for those who take advantage of the program, payments may be made in two installments to the Treasury Department – 50% due on December 31, 2021, with the remainder due on December 31, 2022.  Take note – the deferral is NOT available to employers who receive forgiveness of a PPP Loan. However, there is IRS guidance allowing deferral while waiting for a loan to be approved. For more information, click here.

Relief for Taxpayers Claiming NOLs and Other Items of Interest for Corporate Taxpayers

The IRS has issued guidance providing tax relief under the CARES Act for taxpayers with net operating losses.  Chief among the new revenue procedure is waiver of the carryback period in the case of a net operating loss stemming from a taxable year beginning after December 31, 2017, and before January 1, 2021.  For a comprehensive look at this tax relief option, click here.

The CARES Act also includes taxpayer-friendly provisions regarding interest expense limitations and property eligible for bonus depreciation. Taxpayers should also monitor their local state tax laws, as many states may choose to decouple from these provisions in order to maintain state budgets.

 

COVID-19 Business Resources

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law. 

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