The CARES Act contains a few additional tax provisions, including provisions on the non-taxability of certain loan forgiveness, advance refunding of certain credits and the suspension of certain aviation taxes.
Employee retention credit for employers
New law. This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. The credit is not available to employers receiving Small Business Interruption Loans
For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.
The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.
Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act
Delay of payment of employer payroll taxes
The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020. Thus, notwithstanding any other provision of law,
The term ”payroll tax deferral period” means the period beginning on the date of enactment of the Act and ending before Jan. 1, 2021. Notwithstanding any other provision of law, the payment for 50% of the taxes imposed for the payroll tax deferral period won’t be due before the applicable date.
Temporary repeal of taxable income limitation for net operating losses (NOLs)
Old law. The amount of the NOL deduction is equal to the lesser of (1) the aggregate of the NOL carryovers to such year and NOL carrybacks to such year, or (2) 80% of taxable income computed without regard to the deduction allowable in this section. Thus, NOLs are currently subject to a taxable-income limitation and can’t fully offset income.
New law. The CARES Act temporarily removes the taxable income limitation to allow an NOL to fully offset income.
Modification of rules relating to net operating loss (NOL) carrybacks
Old law. NOL for any tax year is carried forward to each tax year following the tax year of the loss but isn’t carried back to any tax year preceding the tax year of the loss.
New law. The CARES Act provides that NOLs arising in a tax year beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss.
Modification of limitation on losses for non-corporate taxpayers
New law. The CARES Act temporarily modifies the loss limitation for non-corporate taxpayers so they can deduct excess business losses arising in 2018, 2019, and 2020.
Corporate minimum tax credit (MTC) is accelerated.
The CARES Act allows corporations to claim 100% of AMT credits in 2019.
Deductibility of interest expense temporarily increased
New law. The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense from 30% to 50% for tax years beginning in 2019 and 2020.
Special rules for partnerships. Under a special rule for partnerships, the increase in the limitation will not apply to partners in partnerships for 2019 (it applies only in 2020).
Bonus depreciation technical correction for qualified improvement property
New law. The CARES Act provides a technical correction to the TCJA, and specifically designates QI Property , as defined ;(1) qualified leasehold improvement property, (2) qualified restaurant property, and (3) qualified retail improvement property. It replaced those definitions with one category called qualified improvement property (“QI Property”) as 15-year property for depreciation purposes.