Business Tax Related Provisions Contained in the CARES Act
The CARES Act (the “Act”) has been passed by Congress and signed into law. This is part two of a three part series, which focuses on various provisions contained in the Act. Part I summarized the business relief provisions contained in the Act. Part II (below) summarizes other business and tax related provisions. Finally, Part III will focus on the individual relief provisions.
Payroll tax credit refunds: The Act provides for advance refunding of the payroll tax credits enacted last week in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS is instructed to waive any penalties for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit.
Payroll tax delay: The Act delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates. If a taxpayer elects to take advantage of the PPP Loan Forgiveness or other Treasury programs (discussed in Part 1), they are not eligible for this delay.
Net operating losses (“NOLs”): The Act temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021 (this includes 2020, 2019, and 2018). For losses arising in 2018, 2019, and 2020, a five-year carry-back is allowed (taxpayers can elect to forgo the carry-back). Taken together, this allows companies to utilize NOLs from 2018, 2019, and 2020 to receive refunds on taxes paid in prior years and to reduce tax payments in 2020 (and beyond).
Excess loss limitations: The Act modifies the excess business loss limitation applicable to non-corporate taxpayers for 2018, 2019 and 2020. This will allow them to offset up to 100% of their taxable income (rather than the $250k or $500k limit for single or married-filing-jointly taxpayers, respectively).
Corporate alternative minimum tax (“AMT”): The Act modifies the AMT credit for corporations to make it a refundable credit for 2018 tax years.
Qualified improvement property: The Act makes technical corrections regarding qualified improvement property under Sec. 168 by making it 15-year property (as opposed to the 39-year property previously in effect). This will allow businesses to claim accelerated depreciation on “qualified” improvement property.
Aviation taxes: Various aviation excise taxes are suspended until 2021.
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