Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act)
The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act), the largest economic aid package in U.S. history, was signed into law on March 27, 2020. The CARES Act provides approximately $2 trillion in economic assistance to various sectors of the economy impacted by COVID-19, including relief for individuals, distressed industries, the health care sector and small and mid-sized businesses.
Provisions of the CARES Act that impact business owners the most
- Employee Retention Payroll Tax Credit
- o Employers can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for employers whose operations were suspended due to COVID-19, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year.
- The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee.
- Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit.
- Delay of Employment Tax Payments
- The CARES Act allows employers and self-employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020.
- Fifty percent of the deferred tax payments will be due by December 31, 2021, and the remaining portion due by December 31, 2022.
- Businesses who have debt forgiven from Payroll Protection Program loans are not allowed to delay their payments.
- Net Operating Loss (NOL)/Excess Business Loss Changes
- The Tax Cuts and Jobs Act (TCJA) limited NOL deductions to 80% of taxpayer’s current year taxable income. The CARES Act allows NOLs incurred in 2018 to 2020 to be fully deductible, without limitation. NOLs from 2018 to 2020 are also allowed to be carried back five years.
- The CARES Act temporarily eliminates the excess business loss limitation imposed on owners of pass-through entities for 2018, 2019, and 2020.
- Business Interest Deduction
- TCJA had limited the deductibility of business interest to 30% of taxable income. The CARES Act has increased the allowable deduction to 50% of taxable income.
- Qualified Improvement Property
- Businesses will be able to write off all of the costs of certain interior renovations to nonresidential real property (Qualified improvement property) as 15-year property, eligible for immediate bonus depreciation, instead of straight-line depreciation over 39 years.