The House passed a massive $2.2 trillion stimulus bill Friday containing tax relief for both businesses and individuals and other stimulus measures in response to the coronavirus pandemic, and President Trump quickly signed it into law. The Senate passed the same far-reaching bill Wednesday (
According to the Washington National Tax Office of Top Six firm Grant Thornton, the business provisions of the act include:
- Allowing net operating losses arising in 2018, 2019 and 2020 to be carried back five years and suspending the 80 percent taxable income limit until 2021;
- Increasing the taxable income threshold for the Section 163(j) limit on the interest deduction from 30 percent to 50 percent for tax years beginning in 2019 and 2020, and allowing taxpayers to use 2019 taxable income to calculate the 2020 limit;
- Allowing corporations to claim refunds for all remaining Alternative Minimum Tax credits in 2018 and 2019;
- Correcting an error in the Tax Cuts and Jobs Act that prevented qualified improvement property from qualifying for 100 percent bonus depreciation;
- Suspending payment requirements for the 6.2 percent employer portion of Social Security taxes from the date of enactment through the end of 2020, with half the balance due by the end of 2021, and the other half due by the end of 2022;
- Creating a new refundable employee retention credit of up to $5,000 for paying wages while business operations are suspended, or if gross receipts for a business drop by 50 percent;
- Increasing the taxable income limit on corporate charitable deductions from 10 percent to 25 percent and contributions of food inventory from 15 percent to 25 percent;
- Suspending the limit on excess business loss deductions under Section 461(l) in 2018, 2019 and 2020, so that it takes effect for the first time in 2021; and,
- Suspending 2020 funding obligations for single-employer defined-benefit pension plans until Jan. 1, 2021, (with interest due) and allowing pensions to use the prior year’s status for certain benefit restrictions
In addition to income-related rebate checks of $1,200 per filing adult and $500 per qualifying child, the individual provisions include:
- Waiving early withdrawal penalties for up to $100,000 in COVID-19-related withdrawals from qualified retirement accounts, and allowing them to paid back or included ratably in income over three years;
- Doubling the amount taxpayers can borrow from certain qualified retirement accounts to $100,000;
- Suspending required minimum distributions for 2020;
- Allowing an above-the-line deduction for up to $300 in charitable contributions for taxpayers who do not itemize deductions in 2020;
- Removing the AGI limit on individual itemized deductions for charitable contributions in 2020;
- Excluding employer student loan repayment assistance of up to $5,250 from income in 2020 ;
- Permanently restoring the ability for taxpayers to use health savings accounts and flexible spending arrangements to purchase over-the-counter medicine;
“It’s a $600 billion tax cut,” said Dustin Stamper, tax legislative affairs practice leader and a managing director in Grant Thornton's Washington National Tax Office.”Lawmakers clearly designed it to offer immediate benefits in cash flow flexibility. In many cases taxpayers have multiple options to claim benefits and can choose whatever method gets money in their hands more quickly.”
“Taxpayers will need to do some modeling, especially with regard to the net operating loss carryback provisions,” he said. ‘“There are a lot of things to do to adjust the timing of the deduction.”
Other tax experts focused on some of the other provisions of the far-reaching legislation, such as net operating losses.
“Taxpayers can now carryback losses created in 2018, 2019 and 2020,” said Ellen Martin, managing director and tax business line leader for strategic federal tax services at Grant Thornton. ”There’s a five-year carryback for each of those years, which means that there are a lot of tax planning opportunities. These include accounting method changes, including one that is related to another provision of the bill, a technical correction that allows qualified improvement property to be eligible for bonus depreciation. It applies to improvements made to real property. And there are timing options as to whether to include accounting method changes in 2019 or 2020. The issue of when to include NOLs depends on the taxpayer’s particular tax situation.”
The legislation resembles in some ways a disaster recovery bill. “From a legislative view, the CARES Act shares the key characteristics that we’ve seen with other emergency legislation, namely bipartisan willingness to forego typical concerns over cost and take action at unusual speed,” said John Gimigliano, principal-in-charge of federal legislative and regulatory services in the Washington National Tax practice of Big Four firm KPMG. “Similar dynamics were apparent in other emergency legislation including bills enacted after the attacks of September 11, Hurricane Katrina and during the financial crisis. But those precedents also show that each of those three characteristics begins to break down with successive legislative attempts. That made quick passage of the CARES Act key and the development of a ‘coronavirus 4’ package something to watch closely.”
Taxpayers may need to file amended returns. “All businesses are now going to have to refile or amend their corporate tax returns,” said Julio Gonzalez, the CEO of Engineered Tax Services. “CPAs will have to learn the tax changes, which will not be available on their software. They will have to comb through and learn this new law. And the IRS is going to have to clear up as much as possible in the coming days to ensure tax professionals are up to speed.”
Mike Savage, a CPA and CEO of virtual accounting firm 1-800Accountant, observed the following regarding the legislation:
- One of the provisions of the act is providing eligible taxpayers with stimulus payment for up to $1,200 if an individual, or $2,400 if married filing jointly. They may also receive an additional $500 per child who is 16 or under. The amount of the stimulus payment is based on their income. For individuals filing single, who have an adjusted gross income of $75,000 or less, they will receive the full amount; for married couples, earning $150,000 or less, they will also receive the full amounts. If they earn above these thresholds, their stimulus payment may begin to phase out, and stops altogether for single taxpayers earning $99,000 or more, and married couples earning $198,000 or more. The income levels for the thresholds are determined by their 2018 tax return if they have not filed a 2019 tax return; if they have filed a 2019 tax return, their income thresholds are based on their 2019 tax return.
- The stimulus payments are not taxable, and there are no clawbacks if a taxpayer received the payment and makes over the thresholds in the future. If the IRS already has a taxpayer's bank information, it is anticipated that the service will direct deposit the funds into ther bank account. Otherwise, they will send a paper check. If the taxpayer does not receive their check, they should contact the IRS directly.
- The bill is slated to expand unemployment benefits in both the number of qualified taxpayers, as well as the amount received. Typically, self-employed individuals would not qualify for unemployment benefits; however, under the bill, self-employed people will be eligible for unemployment benefits as well. In addition, unemployed workers may potentially get an additional $600 per week for up to four months, on top of the normal state unemployment benefits.
- The government has already waived two months of student loan payments for any federal student loan borrowers; in addition, the bill is slated to suspend payment for student loans held by the federal government until September 30th. The bill also set aside up to $350 billion for small-business loan programs. Businesses with 500 or fewer employees may be eligible. If certain requirements are met, the loan may be partially forgiven.
