Modification of Limitation on Charitable Contributions During 2020
Corporations are permitted to deduct qualified cash contributions made during 2020 up to 25% of their taxable income (increased from the current 10% of taxable income limitation)
Refundable Employee Retention Credit
Grants eligible employers, including certain non-profits, a refundable credit against employment taxes equal to 50% of qualifying wages paid to employees who are not working due to employer’s full or partial suspension of business due to a government order or a significant decline in gross receipts. The credit is limited to 50% of qualifying wages up to $10,000 per employee paid after March 12, 2020 and before January 1, 2021 (i.e. a maximum credit of $5,000 per employee). Government employers do not qualify for this credit. Special rules apply where qualifying wages are taken into account under other provision of the Bill to avoid obtaining a double tax benefit.
Qualifying wages include wages as defined under Sec 3121(a), compensation as defined in Sec 3231(e) and qualified health plan expenses (allocable to wages such as amounts paid to maintain a group health plan). For business that have more than 100 full-time employees, only wages paid when the employee was not providing services are eligible. For business that have 100 or less employees, any wages are eligible. Aggregation rules apply for purposes of testing total employees.
A significant decline in gross receipts takes place during any quarter where gross receipts for that quarter are less than 50% for the same quarter in the prior year and continue until gross receipts exceed 80% of gross receipts for the same calendar quarter in the prior year. The testing date begins with the first calendar quarter of 2020.
If the employer receives a covered loan under the 7(a) program as added by this Act, such employer is not eligible for this credit. Also, no credit is available for any employee for which the employer is also allowed a Work Opportunity Credit (Code Sec. 21).
Employer Payroll Tax Deferral
Allows (i) employers to defer 100% of the employer portion of payroll taxes and (ii) self-employed individuals to defer 50% of their self-employment taxes. This deferral applies to payroll taxes due for the period beginning on the date the Cares Act is signed into law and ending on December 31, 2020. Half of the deferred payroll taxes are due on December 31, 2021 with the other half due on December 31, 2022.
This provision is not permitted for those taxpayers that have a loan forgiven pursuant to the 7(a) loan forgiveness program as added by this Act.
Modifications for Net Operating Losses
Prior to 2018, net operating losses could be carried back two years and carried forward 20 years with the ability to offset 100% of taxable income. The TCJA changed these rules by disallowing any carryback of post-2017 losses and only allowed a carryforward of net operating losses limited to 80% of taxable income.
The new Bill allows taxpayers the ability to carryback net operating losses arising in 2018, 2019, and 2020 to the prior five tax years. Therefore, net operating losses on previously filed tax returns could be carried back to the 2013 tax year. Losses carried over to 2019 and 2020 are now permitted to offset 100% of taxable income.
As was previously the case, taxpayers will be permitted to forgo the carryback, and instead carry the loss forward.
Modifications of Limitations on Losses for Taxpayers Other Than Corporations
The TCJA created a new limitation on excess business losses of non-corporate taxpayers, which limits the amount of business losses that could be deducted in any one year to the greater of 250,000 for single and 500,000 for married filing jointly.
The new Bill temporarily suspends this limitation for tax years beginning in 2018 through December 31, 2020. Losses generated between 2018 and 2020 would be subject to the new net operating loss provisions mentioned above (i.e. could be carried back five years and carried forward with the ability to offset 100% of taxable income in 2019 and 2020).
The new bill makes it clear that wages would not be considered business income for purposes the excess business loss limitation, along with other technical corrections.
Modifications for Credit for Prior Year Minimum Tax Liability of Corporations
The TCJA eliminated the corporate alternative minimum tax (AMT) for corporations for tax years after 2017 and allowed corporations to recover previously generated AMT credits against regular tax or as a refundable credit through 2021. The amount of the refundable credit is limited to 50% of any excess minimum tax in 2018 through 2020, before being refundable in 2021.
The Bill accelerates the year for which any refundable credit can be claimed into 2019, and corporations can elect to claim the fully refundable minimum tax credits in 2018. These refund claims can be made under the Quick Refund Claims procedures, which would require the IRS to act on them and issue refunds within 90 days.
Modifications of Limitations on Business Interest
The TCJA limits the deduction for business interest expense to business interest income plus 30% of Adjusted Taxable Income. For 2019 and 2020, the Bill increases the 30% limitation amount to 50% of adjusted taxable income. In calculating this limitation for 2020, taxpayers can elect to use adjusted taxable income for 2019.
Special rules for partnerships: The 50% rule does not apply to partnerships in 2019. Any interest disallowed at the partnership level is passed out to the partners and is suspended under existing rules. For 2020, 50% of the suspended interest frees-up and will be fully deductible while the remaining 50% subject to the normal rules (i.e. deducted to the extent the partnership allocates excess taxable income to the partner).
Technical Amendments Regarding Qualified Improvement Property
The TCJA allowed for 100% bonus depreciation on assets with a recovery period of 20 years or less. Prior to 2018, qualified improvement property (qualified leasehold, retail, and restaurant improvements) has a recovery period of 15 years. Although unintended, Congress eliminated these special designations within the TCJA causing qualified improvement property to have a recovery period of 39 years.
The Bill provides a technical correction to the TCJA by giving qualified improvement property it’s intended 15-year recovery period and is effective for property placed in service after September 27, 2017. Thus, taxpayers should be entitled to claim the benefits of accelerated depreciation on 2017 and 2018 amended tax returns and on 2019 amended tax returns, if filed already and on 2019 tax returns to be filed.
Temporary Exception From Excise Tax for Alcohol Used to Produce Hand Sanitizer
The new Bill provides waives excise tax on any alcohol used to produce hand sanitizer during the 2020 tax year.