Corporate Tax Updates: April 2, 2020
On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES). This Act provides over $2 trillion in economic relief to businesses, individuals, healthcare, state and local governments, and specific hard-hit industries. The legislation included several important tax provisions, and business aid programs, which are in addition to the previous actions taken by the government in response to COVID-19.
We are here to help your business and make sure you have access to the programs that will be most beneficial to your corporation. In parallel, we are working with clients to identify tax saving opportunities based on this new legislation. To start this process, we have summarized below the various federal aid programs and tax-saving initiatives that are currently available to U.S. businesses:
Qualified Leave for Employees
Congress passed the Families First Coronavirus Response Act on March 18, 2020, which mandates paid sick leave, paid family and medical leave and enhanced unemployment compensation benefits. This law requires employers with fewer than 500 employees to provide paid sick leave to employees who are forced to stay home due to quarantine or to care for a family member (“qualified paid sick leave”) or to care for a child if the school or place of care is closed (“qualified family leave”). The bill compensates employers for this paid leave in the form of a tax credit.
Small Business Exemption – Small businesses with fewer than 50 employees are eligible for an exemption from the family and sick leave requirements relating to school closings or child care unavailability, where the imposition of such conditions would jeopardize the viability of the business as a going concern.
Refundable Payroll Tax Credit (CARES Act)
Eligible employers may claim the new employee retention credit in an amount equal to 50% of “qualified wages” paid through year-end, up to $10,000 per employee. The credit itself is generally available through a payroll tax deposit reduction, with respect to the employer’s share of FICA. Otherwise, the business will receive a refund. Additional restrictions apply.
Paycheck Protection Program (CARES Act)
The CARES Act permits the Small Business Administration (the “SBA”) to provide low-interest loans guaranteed by the federal government to qualifying small businesses, non-profits, and self-employed contractors. These loans are intended to encourage employers to maintain employee payroll and must be used to cover payroll costs or certain rent/utility expenses. The total loan can be for up to 2.5 times the average monthly payroll costs. These loans will be processed or underwritten by banks, and other SBA approved lenders and are forgivable if certain conditions are met (namely employee retention). Additional conditions apply.
Economic Injury Disaster Loans
SBA low-interest loans for working capital to small businesses suffering a substantial economic injury due to COVID-19. The loan is for up to $2M and can be used to cover a variety of operating expenses. Borrowers can request $10,000 payable three days after application. If the EIDL loan is denied, the advanced funds do not need to be returned. Additional conditions apply.
NOL Carryback (CARES Act)
Carryback of NOLs from 2018, 2019, and 2020 will be allowed to each of the five years preceding the taxable year of loss. In addition, the 80% taxable income limitation on NOLs will be deferred for 2019 and 2020.
Business Interest Limitation (CARES Act)
The Section 163(j) limitation on business interest deduction is increased from 30% to 50% of adjusted taxable income for 2019 and 2020. Taxpayers may elect to substitute adjusted taxable income for 2019 for purposes of applying the deduction limitation in 2020.
QIP Accelerated Depreciation (CARES Act)
Technical correction to Tax Cut and Jobs Act, changing the depreciation period of Qualified Improvement Property (QIP) from 39 years to 15 years, and as such, eligible for 100% bonus depreciation. This change is retroactive to January 1, 2018.
Delayed due date of 2019 tax returns
The IRS delayed the payment and filing date of 2019 tax returns until July 15, 2020. This extension is automatic and does not require an application. The due date of Q1 estimated payments for 2020 has been delayed to July 15, 2020, as well.
Many states have aligned with the Federal delay and announced relief to taxpayers in the form of extended filing dates, extended payment dates, waiver of interest/penalties, or a combination of the above. Some states will be passing legislation for similar relief in the upcoming days. Note that not all states conform to federal guidelines, and some have not addressed the issue yet.
We are available to assist you in maximizing the aid that your company receives at this sensitive time. Please be in touch with us to discuss what programs/incentives are relevant to your company or for assistance with loan applications.