The CARES Act includes 14 new tax provisions as well as additional IRS funding for operations and implementation ($293.5 million for taxpayer service; $170 million for operations support; $37.2 million for enforcement)..
Here is what I see as the most important tax elements:
§2201. 2020 Recovery Rebates for Individuals
- Recovery rebate for each taxpayer of $1,200 ($2,400 for joint returns).
- Plus $500 for every qualifying child.
- Rebates are means tested and begin phasing out after $75,000 adjusted gross income (AGI) (single), $112,500, (HoH), and $150,000 (MFJ).
- The rebate amount is reduced by $5 for each $100 a taxpayer’s income exceeds the phase-out threshold and completely phased-out at $99,000/$198,000 (single/MFJ).
- No payment without proper tax identification numbers.
- IRS will base these amounts on the taxpayer’s 2019 tax return
- 2018 tax return if 2019 not yet filed
- If no filing for either year, then based on information provided by Form SSA-1099 or RRB-1099, 2019 Social Security Benefit Statement
- The Department of Treasury is required to conduct a public awareness campaign.
§2202. Special Rules for Use of Retirement Funds
- Waiver for the 10-percent early withdrawal penalty for distributions up to $100,000.
- Coronavirus-related distributions may be:
- repaid any time during the three years from distribution.
- included in gross income ratably over three-taxable-year period.
- Loan limit increased from $50,000 to $100,000.
Sections 2203, 2204, 2206. RMDs; Non-Itemized Charitable; Employer-Paid Education Loans
- Minimum distribution rules for certain retirement plans and accounts are waived for 2020.
- A $300 deduction for cash contributions allowed for taxpayers not itemizing beginning in 2020.
- Employer payment of any qualifying education loan is excluded from income.
§2205. Modification of Limitations on Charitable Contributions During 2020
- For individuals, the 50-percent of adjusted gross income limitation is suspended for 2020.
- For corporations, the 10-percent limitation is increased to 25 percent of taxable income.
- The limitation on deductions for contributions of food inventory from 15 percent to 25 percent.
§2301. Employee Retention Credit for Employers Subject to Closure Due to COVID-19
- All eligible employers are permitted to claim a 50 percent credit against wages paid.
- Credit provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee.
- The credit offsets employment taxes otherwise paid during a calendar quarter (reduced by any other credits used) with any excess refundable by the federal government.
- An employer is eligible if operations fully or partially suspended during a calendar quarter due to a government order or gross receipts for a calendar quarter are less than 50 percent of gross receipts from the same quarter in the prior year (ending when they are 80 percent).
- Credit is based on qualified wages paid to the employee.
- If greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances.
- If eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
- The credit applies to tax-exempt organizations.
§2302. Delay of Payment of Employer Payroll Taxes
- Corporations may postpone employer payroll taxes (Sections 3111(a), 3211(a), and 3221(a)).
- 50 percent of social security taxes for the self-employed may be postponed.
- 50 percent of deferred taxes are due by December 31, 2021; the remainder due by December 31, 2022.
- The Social Security trust funds are held harmless under this provision.
Sections 2303, 2304. Modifications for Net Operating Losses
- Temporarily removes the taxable income limitation to allow a net operating loss (NOL) to fully offset income.
- Losses from 2018, 2019, or 2020 may be carried back five years.
§2304. Modification of Limitation on Losses for Taxpayers Other than Corporations
- The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can benefit from the NOL carryback rules.
- Should I file my 2019 tax return before or after the credit is issued?
- What if I did not file in either 2018 or 2019
- How much should an individual expect? When? How?
- Which one of my clients should carry back NOLs to prior years?
- What about all the unemployment?
In a word: Opportunities everywhere!