On March 27, the Coronavirus Aid, Relief and Economic Security Act (or “CARES Act”) was signed into law. In addition to providing much-needed funding to small, medium and large businesses though the Paycheck Protection Program, Employee Retention Credit and delay of payment of employer payroll taxes, the following tax law changes enacted by the CARES Act should provide some desperately needed relief to individuals and businesses:
Payments will be distributed to eligible taxpayers in the amount of $1,200 per individual taxpayer, plus $500 per qualifying child. The rebate will start to be phased out based upon the 2020 adjusted gross income beginning at $150,000 for a joint tax return filing status, $112,500 for a head of household tax return filing status, and $75,000 for single or married filing separately tax return filing status. As adjusted gross income increases, the payment amounts will be completely phased out ($198,000 joint tax return filing status, $146,500 head of household tax return filing status, and $98,000 single or married filing separately tax return filing status).
Net operating losses arising in tax years ending after Dec. 31, 2017, and before Jan. 1, 2021, are allowed a five-year carryback and the 80% of taxable income limitation is removed as well.
Any forgiveness of indebtedness of Paycheck Protection Program loans will not be treated as taxable income.
Effective for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2021, the limitation on excess business losses for taxpayers other than corporations is removed.
For the 2020 tax year, the 60% of adjusted gross income limit for cash charitable contributions has been suspended and taxpayers claiming the standard deduction are eligible for a $300 “above the line” qualified charitable contribution.
For tax years 2019 and 2020, the business interest expense limitation is increased to 50% of adjusted taxable income instead of 30% of adjusted taxable income (plus business interest income and floorplan financing interest expense).
Reimbursements for certain over-the-counter medical products qualify as medical expenses for health savings accounts, Archer medical savings accounts, flexible spending arrangement, and health reimbursement accounts (effective after Dec. 31, 2019).
Coronavirus-related distributions from eligible retirement plans are not subject to the 10% excise tax (Jan. 1, 2020—Dec. 31, 2020) and taxpayers may elect to spread the income over a three-year period beginning with tax year 2020.
The limit for loans from qualified employer retirement plans is increased from $50,000 to $100,000 (effective March 27, 2020—Sept. 23, 2020).
The required minimum distribution rules are waived for 2020 for certain IRAs and certain defined contribution plans.
Effective retroactively to Jan. 1, 2018, the depreciable life of qualified improvement property is reduced from 39 years to 15 years, making the property eligible for bonus depreciation.
Please consult your tax adviser to determine how these laws impact your specific situation.