CARES Act Summary Briefing Part 4: Business Tax Relief Provisions
Charitable Contributions by Corporations:
Contributions cannot exceed the excess of 25% of the business’ taxable income, which was increased from 10% under prior law.
Employee Retention Credit:
The bill creates a refundable payroll tax credit for 50 percent 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 more than 50 percent when compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee. For employers with 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 described above. For 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 is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
Delay of Employer Payroll Taxes:
Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages, and the bill allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.
Temporary Increase in Business Interest Deduction:
The bill temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020.
Treatment of Net Operating Losses:
The Tax Cuts and Jobs Act of 2017 significantly pared back the ability of businesses to carry forward/carry back Net Operating Losses. This was widely criticized at the time by some experts because NOLs had traditionally been used as a tool to provide tax relief when a business loses money. Prior to the implementation of the Tax Cuts and Jobs Act, the Service allowed businesses to carry net operating losses (NOL) forward 20 years to net against future profits or backward two years for an immediate refund of previous taxes paid. The Tax Cuts and Jobs Act eliminated the two-year net operating loss (NOL) carryback provision and allowed for an indefinite NOL carryforward period. The CARES Act substantially liberalizes the NOL rules as set out in the chart above.
I hope this provides you some useful/actionable insight.
Stay safe out there. -Corwin