On March 27, the House passed by voice vote, and the President signed, a third Coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security Act. The Senate had previously passed the Act on March 25 by unanimous vote. The bill contains many tax related provisions.
An eligible individual is allowed an income tax credit for 2020 equal to the sum of: (1) $1,200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer. The credit is refundable. The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers.
IRS will refund or credit any resulting overpayment as rapidly as possible. The IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment.
If an individual hasn’t yet filed a 2019 income tax return, the IRS will determine the amount of the rebate using information from the taxpayer’s 2018 return. If no 2018 return has been filed, IRS will use information from the individual’s 2019 Form SSA-1099, Social Security Benefit Statement. Even though the credit is technically for 2020, the law treats it as an overpayment for 2019 that the IRS will rebate as soon as possible during 2020.
Children who are (or can be) claimed as dependents by their parents are not eligible for the credit. Check the IRS website for further Q&A to be issued.
Other individual provisions include a waiver of the 10% additional tax on retirement plan distributions related to Coronavirus needs. The income from the Coronavirus related distribution can be reported ratably over a 3-year period beginning with the year the distribution is taken. If the distribution is contributed back to the retirement plan within 3 years beginning on the day after the distribution was made, then the distribution/repayment is treated as a rollover (no income tax is due).
Required Minimum Distributions (RMD) requirements from retirement plans have also been waived for 2020. For years beginning in 2020, individuals may be able to take an “above the line” charitable contribution deduction of up to $300. Those that itemize will be able to take a contribution deduction in excess of 60% of their adjusted gross income providing that those contributions are paid in cash during calendar year 2020.
Employee Retention Credit for Employers equal to 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis is now available. Eligible employers include employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit. The credit applies to wages paid after March 12, 2020 and before January 1, 2021.
The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act.
Deferred payment of the employer portion of Social Security taxes is available to all employers. For self-employed individuals, a deferral of 50% of the self-employment tax is available. The ”payroll tax deferral period” begins on the date of enactment of the Act and ends before Jan. 1, 2021. 50% of the deferred amounts to will be due by December 31, 2021, and the remaining 50% will be due December 31, 2022.
The deferral period is not available to any taxpayer which receives forgiveness of the Small Business Interruption Loans available under the Act.
Net Operating Losses (NOL) arising in a tax year beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. There was also a limitation on the amount of NOL that can be used. That limitation has been suspended for 2018, 2019, and 2020.
Qualified Improvement (QI) Property is retroactively designated as “15-year property. This makes QI Property purchased after December 31, 2017 a category eligible for 100% Bonus Depreciation.
Deductibility of business interest expense temporarily increased from 30% to 50% of adjusted taxable income (the “163(j) limitation for tax periods beginning in 2019 and 2020. The increase in the limitation will not apply to partners in partnerships for 2019 (applies only in 2020).
Please give your MUAC professional a call if you have any questions regarding how these changes effect your current year or past tax filings, or you need assistance on deciding whether to use the above credits versus applying for the newly available Small Business Interruption Loans.