Writer: Josh Chung
Below is a brief summary of the CARES & FFCR Acts.
***CARES (Coronavirus Aid, Relief, and Economic Security) Act***
*Economic Impact Payments (i.e. economic stimulus payment, recover rebate payment)
The economic impact payments will be distributed automatically during the next three weeks (from the notice dated March 30, 2020), with no action required for most people. The payment is up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child.
Eligible tax filers with adjusted gross income (AGI) of up to $75,000 for individuals and $150,000 for married couples filing jointly will receive the full payment. For filers above these amounts, the payment is reduced by $5 for each $100 above the $75,000/$150,000 thresholds (complete phase-out at $99,000/$198,000 (with no children)). Nonresident aliens are not eligible for this payment.
For those who have filed their 2019 tax returns, the IRS will calculate and automatically send the payment to eligible tax filers. Otherwise, the IRS will use information from the 2018 tax return. The payment will be direct deposited directly to the same bank account used on the filed tax return. If the IRS does not have a tax filer’s bank account information – the Treasury is working on a web portal for individuals to provide this information to the IRS online (otherwise, mailed checks are an option but may be delayed).
*Paycheck Protection Program (PPP)
Small businesses are eligible for loans to pay payroll costs including benefits as well as other costs (i.e. rent/mortgage, etc.). The loan amount can be up to 250% of a business’ 2019 payroll (or other baseline depending on the situation of the business). This loan has the potential to be forgiven if the loan is primarily used for payroll costs. (Further discussion in applicable section below.)
An employer who receives a loan under the PPP is NOT eligible to also claim an employee retention credit and payroll tax deferral under the CARES Act.
*Employee Retention Credit
The employee retention credit gives eligible employers a credit against employment taxes equal to 50% of qualified wages (up to $10,000) for each employee for each quarter. Qualified wages may include a portion of the cost of employer-provided healthcare and are paid after March 12, 2020 through December 31, 2020.
Qualifying employers must be either (calculated for each calendar quarter):
a. Employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter; or
b. Employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, the employer no longer qualifies after the end of that quarter.
Qualified wages: In general, for employers with fewer than 100 employees, the credit is based on wages paid to all employees, regardless of whether they worked or not.
Employers can use this tax credit by reducing their payroll tax deposits that have been withheld from employees’ wages by the amount of the credit. In addition, if the employer’s payroll tax deposits are not sufficient to cover the tax credit, the employer may receive an advance payment from the IRS by submitting Form 7200.
An employer who receives a loan under the PPP is NOT eligible to also claim an employee retention credit under the CARES Act.
*Retirement Plan Distributions
Taxpayers can take up to $100,000 in coronavirus-related distributions from retirement plans without being subject to Sec. 72(t) 10% additional tax for early distributions. Eligible distributions may be taken up to December 31, 2020. Coronavirus-related distributions may be repaid within three years, without regard to annual caps on contributions. An eligible taxpayer is one who has been diagnosed with COVID-19 or SARS-CoV-2 or whose spouse or dependent has been diagnosed or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or had work hours reduced, or unable to work due to lack of childcare. Any resulting income inclusion can be taken over three years. Also, loans of up to $100,000 are permitted from such retirement plans with delayed repayment.
The Act also suspends required minimum distributions for 2020.
*Net Operating Losses (NOL)
The Act temporarily repeals the 80% income limitation for NOL deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five year carryback is permitted (taxpayers can of course forgo the carryback).
*Excess Loss Limitations
The Sec. 461(l) excess loss limitation is temporarily repealed – it no longer disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 single ($500,000 for married filing jointly).
*Corporate Alternative Minimum Tax (AMT)
The AMT credit for corporations has been revised as a refundable credit for credits arising in the 2018 tax year to being fully refundable starting in 2019.
For tax years beginning 2019 and 2020, Sec. 163(j) is amended to increase the adjusted taxable income percentage from 30% to 50%. Also, taxpayers may use 2019 income in place of 2020 income for the computation.
*Payroll Tax Deferral – 2020
Deferral of payment of 2020 employer Federal payroll taxes of 50% up to December 31, 2021 and the remaining 50% up to December 31, 2022. This deferral also applies to Federal self-employment taxes. Applies to payroll taxes due and payable from March 27, 2020 through December 31, 2020.
An employer who receives a loan under the PPP is NOT eligible for the payroll tax deferral under the CARES Act.
*Qualified Improvement Property
All qualified improvement property is considered 15-year property and permits 100% of improvements to be deducted in the year incurred (100% bonus depreciation). This change is effective for property acquired and place in service after September 27, 2017. These expenses incurred may be accelerated on amended tax returns for tax year 2017 or 2018 OR on the 2019 tax return.
Exclusion from tax on any forgiven small business loans, mortgage obligations, or other loan obligations forgiven during the applicable period.
***Families First Coronavirus Response Act (Provisions effective April 1, 2020 through December 31, 2020)***
*Emergency Paid Sick Leave
Employers with fewer than 500 employees must provide paid sick leave to employees who are forced to stay at home due to quarantining or to care for a family member or to care for a child if the school or place of care is closed. The employer receives a refundable credit against 100% of sick leave wages paid, claimed on a quarterly basis. Employees can receive up to $200 per day per employee, but this amount is increased to $511 per day per employee if the employee is on leave because either:
a. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
b. The employee has been advised by a healthcare provider to self-quarantine due to concerns related to COVID-19; or
c. The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
The leave is capped at 10 days of wages. This provision also applies to self-employed individuals. Employers with few than 50 employees may be exempt from providing such leave.
*Family and Medical Leave Act – Emergency Family Leave
Employers with fewer than 500 employees must provide emergency family leave when an employee is unable to work (or telework) due to a school or childcare facility closure, after the first 10 days of leave. The employer receives a refundable credit against 100% of family leave wages paid, claimed on a quarterly basis. Employees can receive two-thirds of their regular pay based on the hours they normally work, capped at $200 per day for 50 days or a total of $10,000 per employee. Employers with few than 50 employees may be exempt from providing such leave.
***JC & Associates*** is here to help. For more information on how we can assist you or your business, please contact:
Elisa Lee, CPA (Director)
(213) 760 – 2309