Friday, the House of Representatives passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which the President signed the same day. Because of this legislation, there are several available benefits to businesses and individuals.
Below, is an overview of some of these helpful benefits. We will continue to review content and guidance provided to us by the IRS and Treasury Department and keep you informed of important information. Please contact us with questions at 401-831-0200.
Required minimum distributions not required for 2020.
Penalty-free access to retirement accounts: Taxpayers have been provided additional ways to access capital if needed due to the impact caused by COVID-19. You now may take up to $100,000 from qualified retirement accounts in 2020 without the 10% penalty. The distribution would be included in income over a 3-year period and the distribution can be recontributed to an eligible retirement plan within 3 years, without regard to that year’s contribution cap. In addition, the new provision provides flexibility for loans from certain retirement plans for COVID-19 related relief.
Adjusted Gross Income Deduction: Up to $300 of cash contributions will be deductible as an adjustment to arrive at adjusted gross income. This will benefit taxpayers that don’t itemize.
Elimination of adjusted gross income cap for charitable contributions: The 50% of adjusted gross income cap for charitable contributions is eliminated for 2020. The 10% charitable contribution limit for corporations is increased to 25%.
Employee retention credit available to employers: There is an employee retention credit of 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended due to a COVID-19 related shut-down order or (2) gross receipts declined by over 50% when compared to the same quarter of the prior year. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. Eligible wages are those paid or incurred between March 12, 2020 and December 31, 2020.
Deferred payment of employer social security tax: Employers and self-employed individuals can defer payment of the employer share of the social security tax. The deferred tax would be paid over a two-year period starting in 2021.
Carry-back of net operating losses: Net operating losses arising after 2017 can be carried back 5 years.
Taxable income limitation is suspended: The taxable income limitation on net operating losses is temporarily suspended for 2018 through 2020.
Relaxed business loss limitation: The business loss limitation for non-corporate taxpayers is relaxed for taxable years beginning after December 31, 2017.
Business interest limitation is increased: Business interest limitation increased to 50% from 30% for tax years beginning in 2019 and 2020. However, this provision doesn’t apply to partners in a partnership for 2019. The partners are allowed to deduct in 2020 50% of the 2019 excess interest allocated to them and the other 50% deducted as excess taxable income is allocated to the partner. The partner can elect out of this provision, although we don’t know why they would
Some property improvements eligible to be expensed: Qualified improvements to real estate property is eligible to be expensed immediately. The provision provides an opportunity to amended prior years returns to take advantage of the benefit.
Student loan payments deferred: Student loan payments are deferred for 6 months through September 30, 2020.
Employer sick leave payment cap for those quarantined: Employers do not have to pay more than $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child for each employee.
Employer paid leave payment cap: Employers not required to pay more than $200 per day and $10,000 in the aggregate for each employee under the paid leave provisions.
Pension plan contribution delay allowed: Single employer pension plan companies may delay the due date for any contributions due during 2020 until January 1, 2021. The contribution would be due with interest.
HSA and Flex Spending account qualified distributions have been expanded: Over the counter medical products without a prescription may be paid through Health Savings Accounts and Flexible spending accounts.