Posted on March 26 2020
Coronavirus Update 3/26/20
EMERGENCY UPDATE — Thursday, March 26 —
To our clients:
At long last, the Senate has passed a $2.2 trillion economic stimulus bill. The Coronavirus Aid, Relief, and Economic Security Act (CARES) is the most expensive piece of tax legislation ever passed. The House now has the opportunity to modify the bill and the President has preliminarily indicated that he would sign the bill immediately.
Some general provisions in the Senate bill are as follows:
• $1,200 recovery rebate checks for individual taxpayers and $2,400 checks for joint tax return filers. The checks will be deemed to be advance payments of credits to be applied against your 2020 tax liability. In addition, a $500 credit will also be available for each child. Please note that the rebates will begin to decline as income exceeds threshold amounts. These amounts are as follows: $75,000 for single filers, $112,500 for head of households and $150,000 for joint filers. The income amounts are based on 2019 tax returns, if filed, and 2018 tax returns if a 2019 return has not yet been filed. Lastly, the target date for delivery of the rebates has not yet been finalized. Treasury has initially indicated that the rebates will be processed quicker in cases where a taxpayer’s bank account information has been included with the 2018 or 2019 tax return.
• The 10% early withdrawal penalty for early distributions from qualified retirement plans has been waived for coronavirus-related distributions. For this purpose, a coronavirus-related distribution includes the following requirements: 1) made in 2020, 2) to an individual or spouse of a person diagnosed with COVID-19 with a CDC approved test, or 3) to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff or reduced hours. In addition to being exempt of the early withdrawal penalty, the income can be spread over a 3 year period and the withdrawn amount can be subsequently contributed back to a qualified plan without consideration of annual funding limits if done within three years.
• For 2020, individual taxpayers will be permitted to claim a charitable contribution deduction of up to $300 in calculating adjusted gross income (i.e. the deduction is available even if the taxpayer does not itemize their deductions).
• Employers can pay up to $5,250 of student loans for an employee without any adverse tax consequences to the employee. Note that in order to qualify for the exclusion, the loan must relate to education for the employee only and not a spouse or dependent. In addition, the payments must be made after enactment of the law and prior to January 1, 2021.
• Employers are eligible for a credit against employment taxes equal to 50% of qualified wages paid to employees who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts. The credit is available on a quarterly basis and is limited to $10,000 in aggregate per employee for all quarters. In addition, the credit applies to wages paid after March 12, 2020 and before January 1, 2021.
• The payment of payroll taxes related to the period beginning with the date of enactment of the CARE Act and ending on December 31, 2020 are deferred. Half of the deferred amount will be due on December 31, 2021 with remainder due on December 31, 2022.
• Beginning in 2018, net operating losses were generally not eligible to be carried back to generate refunds of prior year taxes. With the CARES Act, losses incurred in 2018, 2019 or 2020 can be carried back up to 5 years.
• Beginning in 2018, interest expense deductions could potentially be limited for taxpayers with gross revenue in excess of $25 million ($26 million in 2020). An interest expense deduction was limited to 30% of the taxpayer’s adjusted taxable income. The CARES Act increases the threshold to 50% for 2019 and 2020. In addition, taxpayers can elect to use 2019 adjusted taxable income in determining the limitation amount for 2020. This election could be particularly beneficial for highly leveraged companies that, due to the recent economic downturn, anticipate much lower income in 2020 relative to 2019.
• Qualified improvement property is now, once again, deemed to be fifteen year property, effective September 27, 2017. This is critical in that building improvements are now eligible for bonus depreciation (i.e. can be depreciated in full in the year of acquisition). This adjustment can be made with an amended 2017 or 2018 return or with the 2019 tax year on a return due July 15, 2020.
• Unemployment benefits will now provide for up to an additional $600 per week benefit, in addition to any state mandated payments, for up to 4 months.
As indicated earlier, the above items may be passed in their entirety or may be modified prior to the legislation being signed into law. Please note that we will continue to monitor this legislation and provide you with additional information as soon as the law is enacted, and we ask that you not hesitate to contact us if we can be of assistance in any way during these difficult times.
MillerSearles LLC | Certified Public Accountants | Advisors