The final legislation includes the following provisions for businesses:
The largest benefit available in the CARES Act for small businesses is the Paycheck Protection Program.
Qualifying Small Businesses are eligible for emergency loans for business interruption because of COVID-19.
Loans will be allowed to be used for:
The maximum amount of the loan available is the lesser of $10 million, or the borrower’s average total monthly payroll costs (subject to certain limitations) for the previous year times 2.5.
To qualify for the program the business must have been in operation on March 1, 2020, had employees for whom salaries and payroll taxes were paid and did not have more than 500 employees.
Loans are eligible for forgiveness, with any unforgiven portion repayable over a maximum 10-year period with an interest rate not to exceed 4%.
While the FFCRA allows payroll credits for employers who are required to provide paid leave to employees affected by COVID-19, the employee retention credit under the CARES Act provides a credit based on the economic strain COVID-19 may put on a business.
For wages paid after March 12, 2020, and before January 1, 2021, eligible employers (including tax-exempt organizations) would be allowed a new refundable payroll tax credit equal to 50 percent of the qualified wages paid. The total eligible wages per employee are $10,000, resulting in a maximum credit of $5,000 per employee. To qualify for the credit, an employer must meet all of the following criteria:
The rules governing whether employers qualify for the credit depend on the number of employees who work for the employer. For employers with more than 100 full-time employees during 2019, an employee must be unable to provide services due to the circumstances outlined in 2a or 2b above. For employers with 100 or fewer full-time employees, the credit is allowed regardless of whether an employee is able to provide services, as long as the circumstances outlined in 2a or 2b above are met.
The CARES Act includes anti-abuse measures that prevent employers from double-counting wages used to determine the employee retention credit in the calculation of other credits such as the Work Opportunity Tax Credit under Internal Revenue Code (IRC) Section 51 or the Employer Credit for Paid Family and Medical Leave under IRC §45S. In addition, employers receiving small business interruption loans (covered below) are not eligible for the employee retention credit.
The CARES Act expands the payroll tax relief provided under the FFCRA by allowing employers to delay remittance of their share of Social Security tax (6.2%) on taxable wages that would have been deposited between the date of the CARES Act’s enactment and December 31, 2020. Instead, 50 percent of those taxes must be deposited by December 31, 2021, and the remainder deposited by December 31, 2022.
Similar relief is provided for self-employed individuals under the CARES Act. However, those taxpayers still must pay 50 percent of the Social Security tax portion of these self-employment taxes, i.e., the employee’s share, in the same manner as usual.
Employers who have had indebtedness forgiven under the Small Business Act are not eligible for this payroll and self-employment tax deferral relief.
For corporations, the CARES Act temporarily increases the 10 percent limitation on charitable contribution deductions to 25 percent of taxable income. Excess contributions may be carried forward to future years, subject to the general charitable contribution carry forward rules.
Under the CARES Act, the current net operating loss (NOL) rules put in place by the Tax Cuts and Jobs Act (TCJA) are temporarily revised to allow losses arising in tax years 2018, 2019 or 2020 to be carried back five years. In addition, the provision limiting NOLs to only 80 percent of a taxpayer’s taxable income is suspended for taxable years beginning before January 1, 2021, allowing companies to fully offset taxable income by such carrybacks or carryforwards.
The CARES Act also provides a technical correction to the TCJA to retroactively align the effective date of the NOL limitation and NOL carryback/carryforward provisions. In addition, for noncorporate taxpayers, the limitation on excess business losses imposed by the TCJA would be retroactively postponed and applied only to taxable years beginning after December 31, 2020. Therefore, if a taxpayer had an excess business limitation on their 2018 return, there may be an opportunity to amend to claim the additional loss and receive a refund.
The TCJA created a new limitation on business interest expense deductions for tax years beginning after December 31, 2017. The CARES Act temporarily modifies the 30 percent of adjusted taxable income (ATI) limitation—as originally provided in the TCJA—to 50 percent of ATI. While taxpayers may elect to use the 30 percent limitation instead, this provision would affect taxable years beginning in 2019 or 2020 and allow businesses to increase liquidity with a reduced cost of capital. In addition, businesses may elect to use their 2019 ATI to calculate their 50 percent of ATI limitation for 2020.
Unless they elect not to, partners of partnerships subject to the business interest expense limitation rules would be able to treat 50 percent of any allocated excess business interest expense (EBIE) from the partnership during 2019 as fully deductible in tax year 2020. The remaining 50 percent of EBIE is subject to the normal rules under IRC §163(j) and is only deductible by the partner in a future year if that same partnership passes through excess taxable income or excess business interest income.
The CARES Act includes a highly anticipated technical correction to the TCJA (commonly referred to as the retail glitch) that would allow taxpayers to apply the accelerated bonus depreciation rules to qualified improvement property (eligible for 100% bonus depreciation). The effective date of this amendment would be retroactive to the TCJA’s enactment, thus creating refund opportunities for taxpayers. Refunds could be achieved by filing either an amended 2018 return or possibly an accounting method change with the taxpayer’s 2019 return, depending on whether the IRS considers this an automatic change.
The CARES Act amends portions of the Families First Coronavirus Response Act (FFCRA), enacted on March 18, 2020, including clarifying that employers subject to the FFCRA may elect to provide more paid leave than mandated by the FFCRA; however, the corresponding payroll tax credits are capped at the FFCRA’s mandatory paid leave wage amounts.
The CARES Act also expands eligible employees under the paid leave provisions of the FFCRA to workers who were laid off not earlier than March 1, 2020, had worked for the employer for at least 30 of the last 60 calendar days prior to being laid off and were rehired by the employer.
Most importantly, employers subject to the FFCRA may receive an advance (including any refundable portions) of FFCRA payroll credits to help cover the expense of providing the required paid leave under the FFCRA. The U.S. Department of Labor is expected to issue further guidance through forms, form instructions and regulations.
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