December 9, 2020

Tax Highlights from the Coronavirus Aid, Relief and Economic Security (CARES) Act

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Individuals

  • Eligible individuals can receive a credit against his or her 2020 tax liability. Individuals eligible for this credit include U.S. residents with a social security number who are not: (1) able to be claimed as a dependent on someone else’s tax return, or (2) an estate or trust. The amount of credit received is dependent on how much the individual earns. The IRS will determine income for these purposes by using the 2019 tax return information (now due July 15, 2020). If the individual hasn’t submitted tax documents this year, then the IRS may use last year’s return to calculate income. An eligible taxpayer earning less than $75,000, or spouses collectively earning less than $150,000, are eligible for $1,200 per person, plus an additional $500 per each qualifying child. Social Security recipients and railroad retirees who are not typically required to file a tax return are also eligible and will receive their payments without filing a return.
  • For the 2020 tax year, the cap limiting how much individuals can deduct in charitable cash contributions (60% of AGI) has been removed. As a result, individuals can fully deduct charitable cash contributions equal to as much as 100% of their AGI this year. And for tax years beginning in 2020, eligible taxpayers (i.e., one who does not elect to itemize deductions) are entitled to an above-the-line deduction of up to $300 for charitable cash contributions to a qualified tax-exempt organization.
  • From March 27, 2020, through December 31, 2020, individuals may exclude from taxable income up to $5,250 of most student loan payment reimbursements made by their employers.

Retirement Plans

  • Suspends the minimum distribution rule for 2020 for defined contribution plans and IRAs, ignoring 2020 in determining any five-year period on required withdrawals. In addition, the first time required minimum distributions within the grace period ending April 1, 2020, are also suspended. Any ten-year period on required withdrawals is not extended.
  • The CARES Act waives the 10 percent withdrawal penalty for distributions in 2020 on qualified IRA’s or retirement plans up to $100,000. One third is taxed in each of the years beginning in 2020. Recontribution will be available within three years for individuals, whether self-employed or otherwise employed, who are diagnosed or have a spouse or dependent diagnosed with the virus rendering them unable to work due to quarantine, furlough, or reduced hours.
  • Allows cumulative loans from employer plans from date of enactment through September 22, 2020, of up to the lesser of $100,000 or 100 percent of an individual’s vested balance. It delays repayment on existing loans by one year on payments due on or after the date of enactment through December 31, 2020. In each case for individuals (including self-employed) diagnosed or with a spouse or dependent diagnosed with the virus or with an inability to work due to quarantine, furlough, or reduced hours.

Businesses

  • A refundable employment tax credit is available for 50 percent of the first $10,000 of wages (including health insurance) paid or incurred from March 13, 2020, for any quarter through yearend for employers fully or partially shut down by a governmental authority due to the virus or whose quarterly gross receipts declined by more than 50 percent from the comparable quarter in 2019 ceasing at the start of a quarter where the 80 percent level is attained (not available to businesses relieved of certain loan indebtedness pursuant to the Act); for a business of more than 100 employees, the credit applies only when employees were not providing services due to the virus.
  • Social Security tax payments to employers may be deferred after enactment and through 2020. One-half to be paid on December 31, 2021, and the remaining balance due on December 31, 2022.
  • Business interest limitations are relaxed for 2019 and 2020. Deductions up to the amount of interest income plus 50 percent of income before depreciation and amortization. 2019 income numbers may be utilized in 2020 for the calculation of this limitation.
  • For C Corporations that incur a net operating loss in 2020 (or 2018 or 2019), the losses may be carried back five years.
  • The 2019 applicability of the ordinary income loss limitation for individuals delays to the new effective date of 2021, or 2027 for farmers.
  • C Corporations may deduct cash charitable contributions up to 25 percent of tentative taxable income for the 2020 year.
  • Until December 31, 2020, C corporations may take any unused alternative minimum tax credit deductions on their 2018 return; otherwise, it is taken in 2019.
  • Allows the immediate write-off of through bonus depreciation as a correction of the 2017 Tax Cuts and Jobs Act in restoring the treatment of leasehold improvements to commercial property by landlords or tenants as 15-year property.

Footnotes

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