The Senate’s version of the CARES Act has employment tax and income tax provisions designed primarily to allow businesses the opportunity to retain cash or receive cash in the form of tax refunds in the near term. Included below is a brief summary of the proposed material tax law changes affecting businesses. A more detailed summary of the Senate bill will be forthcoming, and we will cover any revisions to the legislation as it moves through the House of Representatives. As with any tax provision, the below are subject to certain qualifications and exceptions that will need to be analyzed on a case-by-case basis, if they become law.
- The Senate bill allows
for a deferral of the payment of the employer portion of the 12.4% OASDI (i.e., Social Security) tax otherwise due for 2020. One half can be deferred to the end of 2021 and the other half to the end of 2022. A similar deferral applies to those taxpayers subject to the self-employment tax.
- The Senate bill provides an employment tax credit for businesses affected by the coronavirus pandemic. Generally, a business must show it has been affected by either being suspended by government order or seeing a 50% or more reduction in gross receipts as compared to the same period in 2019. The amount of the credit is based on the amount of wages paid to certain employees and is generally capped at $5,000 per employee.
- The Senate
bill makes two important changes to the Section 172 net operating loss provisions. First, net operating losses arising in 2018, 2019, and 2020 can be carried back five years. Second, for those same years the 80% income limitation for net operating losses does not apply.
- The Senate bill allows for the immediate use of unclaimed corporate alternative minimum tax credits.
- The Senate bill raises the Section 163(j) interest limitation from 30% of taxable income to 50% for 2019 and 2020. Also, taxpayers can use their 2019 taxable income amount for purposes of calculating the limit for 2020.
- The Senate bill fixes a drafting error in the 2017 Tax Cuts and Jobs Act by making “qualified
improvement property” immediately deductible. This change would be effective retroactive to the implementation of the Tax Cuts and Jobs Act.
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