Employee Retention Credit (Section 2301 of the Act): Refundable payroll tax credit equal to 50% of up to $10,000 in wages per employee, including health benefits, if employer operations were fully/partially suspended due to a COVID-19 governmental shutdown, or if gross receipts declined more than 50% in a quarter compared to the same quarter in 2019. Credit applies to wages paid after March 12, 2020 and before Jan. 1, 2021. For eligible employers having more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services during a COVID-19 related shutdown order or during the quarter in which there was the decline in gross receipts described above. Thus, wages paid to employees “working from home” would not be qualified wages. For eligible employers with 100 or fewer full-time employees, all employee wages paid qualify for the credit, whether the employer is open, employees are working from home, or the business is subject to a shutdown order. Employers are NOT eligible if they receive any Paycheck Protection Program loan.
Delay of Payment of Employer-Side Payroll Taxes (Sec. 2302): Employers may defer employer-share of payments of the Social Security tax (6.2%) for wages paid to employees from enactment of the CARES Act (3/27) through Dec. 31, 2020, with 50% owed on Dec. 31, 2021 and the other 50% on Dec. 31, 2022. However, the Medicare payroll tax would still be due as usual. Also, employers that receive loan forgiveness under the Paycheck Protection Program are not eligible to defer the applicable taxes.
Five-Year Carry Back of Net Operating Losses (Sec. 2303): Firms may take NOLs for 2018-2020 and carry back those losses five years. This allowance is extended to pass-through businesses and the CARES Act also suspends the Tax Cuts and Jobs Act’s excess business loss disallowance rule (Sec. 2304).
Interest Expense Adjustment (Sec. 2306): Raises the amount of interest expense businesses can deduct on their tax returns by increasing the 30% limitation to 50% of taxable income (with adjustments) for 2019 and 2020.
COVID-Related Administrative Actions on Filing Dates
On March 18, the IRS extended the deadline for filing tax returns/payments for 2019 to July 15, 2020, giving taxpayers and businesses more time to file returns and make tax payments without interest or penalties. The deferment of taxes had been capped at $1 million for individuals, married couples and small business owners while corporations had a $10 million limit, but the IRS issued Notice 2020-18 on March 23 repealing those caps and individuals and businesses can defer any amount of owed taxes until July 15, 2020. In addition, the payment deadline for 2020 first-quarter (Q1) estimated federal income taxes has been deferred until July 15, 2020, and the June 15 deadline for 2020 second-quarter (Q2) estimated federal taxes has been extended to July 15, as well.
For more IRS information on COVID-related business tax breaks go to: www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments.