Updated 04/02/2020
EMPLOYEE RETENTION CREDIT FOR EMPLOYERS SUBJECT TO CLOSURE DUE TO COVID-19
- Applies
to businesses that experience a full or partial cessation of operations in
2020.
- SAFE
HARBOR TEST: A business will qualify if, in any given quarter in 2020, gross
receipts were less than 50% of the corresponding quarter in 2019.
- Credit
is equal to 50% of qualified wages paid to qualified employees who are unable
to work between 3/13/2020 and 12/31/2020 due to a full or partial cessation of
business operation.
- The
maximum credit is $10,000 per qualified employee.
- This
credit is refundable to the extent it exceeds payroll tax liability.
- Entities that receive an SBA Section
7(a) payroll protection loan (PPP) are not eligible.
DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES
- The employer portion of social security taxes (6.2%) that would otherwise be due between the date of enactment of the CARES Act and 12/31/2020 are deferred as follows:
- 50% will be due 12/31/2021
- 50% will be due 12/31/2022
- Entities granted debt forgiveness from an SBA Section 7(a) payroll protection loan (PPP) are not eligible.
- 50% of self-employment tax is not subject to late payment penalties.
- The employee portion of social security taxes, Medicare taxes, and federal income tax withholding are not affected by this provision.
MODIFICATIONS FOR NET OPERATING LOSSES
- This section applies specifically to corporate entities.
- Net operating losses created in 2018, 2019, and 2020 may be carried back up to five years.
- The limitation of NOLs to 80% of taxable income has been removed through tax year 2020. NOLs will be able to offset 100% of taxable income.
- A technical correction was made to the TCJA language dictating when the 80% limitation / no-carryback rules became effective. The TCJA originally applied these rules to tax years ENDING after 12/31/17. This was correcting to tax years BEGINNING after 12/31/17.
- REITs are excluded from these changes.
COMMENTARY: Tax returns filed for tax years 2018 and 2019 that included NOLs should be reviewed to determine if amending such returns would be beneficial to the taxpayer. Tax returns for fiscal year entities that included NOLs should be reviewed to determine if the technical correction to the date the TCJA rules became effective necessitates amending returns.
MODIFICATION OF LIMITATION ON LOSSES FOR TAXPAYERS OTHER THAN CORPORATIONS
- The excess business loss limitation (Sec 461) is suspended until 2021.
- The amounts of capital gains included in the calculation cannot exceed the lesser of:
- Net capital gains attributable to a trade or business
OR
- Total net capital gains.
- This change is effective for tax years beginning after 12/31/17.
MODIFICATION OF CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY OF CORPORATIONS
- Corporations carryforward credits generated by paying Alternative Minimum Tax.
- Corporate Alternative Minimum Tax was repealed effective in 2018.
- Corporations can claim refunds for all remaining AMT credits in 2018 and 2019.
MODIFICATION OF LIMITATION ON BUSINESS INTEREST
COMMENTARY: Tax returns filed for tax year 2019 that included a limitation of interest should be reviewed to determine if amending such returns would be beneficial to the taxpayer.
TECHNICAL AMENDMENTS REGARDING QUALIFIED IMPROVEMENT PROPERTY
- This is a modification of the interest limitation provisions of Section 163(j).
- Under current law, the deduction of interest is limited to 30% of Adjusted Taxable Income (ATI).
- For 2019 and 2020, for entities other than partnerships, the limitation will be increased to 50% of ATI.
- For partnerships, the Excess Business Interest Expense will be calculated at 30% ATI. However, at the partner level:
- 50% of the interest will be fully deductible in 2020, not subject to limits.
- 50% of the interest will carry forward to 2020 as Excess Business Interest Expense, and subject to limits in 2020.
- For 2020, businesses can elect to use 2019 income as ATI for purposes of the limitation calculation. Entities filing 2020 short years returns are excluded from this election.
COMMENTARY: Tax returns filed for tax years 2017, 2018, and 2019 should be reviewed to determine if qualifying property was placed into service, and if amending those returns would be beneficial to the taxpayer.
If it is determined that amending a 2017 or 2018 return is undesirable, a 3115 may be attached to a 2019 tax return to correct the depreciable life of assets placed into service in 2017 and 2018.
It is possible that the IRS may issue additional guidance that allows taxpayers to file a 3115 with 2019 tax returns and allow bonus depreciation on assets placed into service in 2017 and 2018 to be taken in the form of a 481(s) adjustment. However, no such guidance has been issued at this time.
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