|Coronavirus Families First Response Act||COVID-19 Five Business Essentials|
President Signs $2.2 Trillion Bill – THE CARES ACT
The Act passed in the Senate by a unanimous vote on March 25, 2020 and was passed in the House of Representatives on March 27, 2020. The President signed the bill into law later on March 27, 2020.
The Act will make significant impacts on the economy for businesses and individuals. The majority of the tax relief is designed to increase liquidity in the economy, largely through the relaxation of limitations on business deductions and the deferral of taxes, but also with the introduction of recovery rebates for individuals.
The Act contains hundreds of pages, but here is an overview of the key provisions for individuals and businesses.
BUSINESS TAX RELIEF
We have been sending out newsletters for several weeks regarding information coming out of Washington for individuals and businesses, but we want to address our businesses specifically here and discuss the resources that are available.
There are several options available to small businesses immediately. The loans have an urgency due to the amount of funds available and will probably run out within a few weeks.
- Paycheck Protection Program (PPP) Loan - applications open up on April 3rd. Contact your bank immediately to see how to apply.
PPP Loan: Must apply through your bank but details and loan application can be found at https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses
- Economic Injury Disaster Loan (EIDL) -
EIDL: Initially apply through SBA, they will start the process and then require additional documents for underwriting.Apply directly through SBA - https://www.sba.gov/
- Insurance Review for Pandemic Claim
- Payroll Credits
LOANS: The loans are the EIDL and the Paycheck Protection Program (PPP) loan. Each loan has different qualifications. The EIDL offers an initial $10,000 Grant, it does not offer any additional forgiveness outside of the Grant. Additionally, we do not know if the Grant will have to be repaid if a business decides to not continue with the EIDL application and has already received the initial grant funds. However, if the EIDL is denied by the SBA, then the business can keep the Grant funds if they have already received them. The PPP loan is much simpler loan to initially apply for but does require detailed records to qualify for forgiveness. Self-employed individuals can also qualify for these loans and have a forgiveness based on certain qualifying costs. Click here for a basic comparison between teh two loans. This comparison is based on the information that was current as of March 27, 2020.
INSURANCE: Some Business insurance policies have included a pandemic rider. We recommend you consult a third-party insurance adjuster to get a complete review of your policy. You may contact Daniel Haynes, as a public adjuster, he works exclusively for you, the business owner and not the insurance company, to facilitate receipt of fair claim compensation in accordance with the terms of your insurance contract. He works on a contingency basis, and only earns a fee if you receive a payment. Potential covered claims could be salary to furloughed employers, lost income, lost inventory, cancelled contracts, etc. He is a retired Veteran and we highly recommend his services as a Veteran owned business to another and we do not receive any type of referral fee or compensation for recommending him. He has a simple and straight forward process as regulated by the State and he will be happy to discuss your situation and options directly. There are zero upfront costs involved. Daniel can be reached at 512 560-5272 or email at Daniel.email@example.com
Employee Retention Credit
The CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of qualified wages paid to employees who are not working due to the employer's full or partial cessation of business or a significant decline in gross receipts. The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters. The provision contains several requirements defining qualified wages. qualified employees, and qualified employers. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.
Note: This is very similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act signed into law on March 18, 2020, with some changes to the requirements.
Most significantly, neither the employee nor the employer have to be directly impacted by infection.
Payroll Tax Deferral
In order to free up employers’ cash flow and retain employees during times of quarantine or shutdown, the CARES Act defers the payment of payroll taxes. Payroll taxes due from the period beginning on the date the CARES Act is signed into law and ending on December 31, 2020, are deferred.
Note: The Deferral still requires businesses to pay the tax, but at a later date. This could pose a problem if the business doesn’t pay and then forces collection action by the IRS at a later date.
The 6.2 percent OASID portion of payroll taxes incurred by employers, and 50 percent of the equivalent payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.
Net Operating Losses
The Act allows for a five-year carryback of net operating losses (NOLs) arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback. Under current law, only farming NOLs are allowed to be carried back, and the carryback is limited to two years.
The Act also eliminates loss limitation rules applicable to sole proprietors and passthrough entities to allow them to take advantage of the NOL carryback.
Additionally, the Act allows for NOLs arising before January 1, 2021, to fully offset income. Under current law, NOLs are limited to 80 percent of taxable income.
Minimum Tax Credits
The TCJA eliminated the alternative minimum tax for corporations for tax years after 2017, but allowed corporations to claim a refundable portion of any unused minimum tax credits through 2021. The amount of the refundable credit is limited to 50 percent of any excess minimum tax in 2018 through 2020, before being fully refundable in 2021. The Act accelerates the year for which a fully refundable credit can be claimed to 2019 and allows corporations to elect to claim the fully refundable minimum tax credits in 2018.
Business Interest Expense Limitation
The TCJA limited the amount of allowable deductions for business interest (regardless of the type of entity) for tax years beginning after 2017. The limitation is generally the amount of business interest income for the year plus 30 percent of the taxpayer's adjusted taxable income for the year. The limitation does not apply to taxpayers with average annual gross receipts for the prior three year below an inflation-adjusted amount. For 2020, this amount is $26 million or less.
The Act increases the limitation amount to 50 percent of the taxpayer's adjusted taxable income for 2019 and 2020 (with a special allocation election required for partnerships for 2019). In calculating the limitation for 2020, the taxpayer may elect to use adjusted taxable income for 2019.
Qualified Improvement Property
When Congress drafted the TCJA, it allowed for 100-percent bonus depreciation rules to apply to all MACRS property with a recovery period of 20 years or less. Before TCJA, qualified improvement property was depreciated as 39-year residential real property, unless it separately qualified as 15-year qualified leasehold improvement property, 15-year retail improvement property, or 15-year restaurant property. Congress eliminated the three separate categories of 15-year improvement properties with the intention of making all qualified improvement property 15-year property. However, it failed to do so, and as a result, qualified improvement properly is depreciated as 39-year property and not qualified for bonus depreciation.
The CARES Act corrects this Congressional oversight by defining qualified improvement property as 15-year property, thus allowing 100 percent of improvements to be deducted in the year incurred. The change is made as if included in the TCJA and thus, is effective for property acquired and placed in service after September 27, 2017.
IMPACT:The closures and quarantines related to the coronavirus COVID-19 pandemic have been especially hard on small businesses, which includes restaurants and local retail stores. This technical correction allows any expenses incurred by owners to make improvements to the physical premises related to these businesses to be accelerated into the 2017 or 2018 tax year on an amended return or the 2019 tax year on a return due July 15, 2020.
Excise Tax Relief
The Act also provides a temporary exception from alcohol excise taxes for alcohol for use in or contained in hand sanitizer produced or directed by the Food and Drug Administration related to the pandemic. The Act also suspends excise taxes on aviation and kerosene used in aviation fuel. The exception and suspensions are applicable to 2020 only.
The CARES Act is a massive Act, the majority of which does not have a tax impact. However. some smaller, but no less significant, provisions impacting federal tax are sprinkled outside of the tax-related division of the Act. These provisions include:
- The exclusion from tax of any forgiven small business loans, mortgage obligations, or other loan obligations forgiven by the lender during the applicable period;
- A safe harbor from the definition of a high deductible health plan permitting telehealth services to be included. even though such services do not carry a deductible;
- The inclusion of over-the-counter menstrual products as qualified medical expenses for purposes of distributions from health savings accounts and health flexible spending arrangements:
- Pension funding relief for failures to meet contribution requirements to defined benefit plans during 2020;
- Allowing certain charitable employers whose primary exempt purpose is providing services to mother s and children to use small employer charity pension plan rules.
ADDITIONAL RESOURCES: The following is a list of resources for small business. Texas was added to the SBA Disaster Loans on Friday March 20, 2020. Additionally, the Treasury and IRS have relased information regarding paid leave for workers and tax credits for small and midsize businesses as well as refundable payroll tax credits.
- Senator Cornyn's Coronavirus (COVID-19) website: https://www.cornyn.senate.gov/content/page/coronavirus-covid-19
- Internal Renenue Service Coronavirus Tax Relief Website: https://www.irs.gov/coronavirus
- Congressman John Carter's website: https://carter.house.gov/#dialog
USA Small Business Administration
Insurance Claims for Pandemic Virus- Review your policy or contact a Third-party adjustor to see if you have a pandemic rider on your policy. You may call our office for more information if you are unsure.
U.S. Chamber of Commerce