Favorable Business Provisions of the CARES Act

While the headlines were focused on the Paycheck Protection Program (PPP), the CARES Act contains several provisions beneficial to businesses.

Is there an employee retention credit for employers?
Yes. This new credit is available to employers that retain employees and maintain salary during the rest of 2020. The credit is against the 6.2% employer’s share of Social Security tax. The credit will be available to all qualified employers that either had to suspend operations or had a significant drop in gross receipts in an applicable credit quarter. It is limited to $10,000 of qualified wages plus health care costs per employee. This credit can not be taken if you have received a PPP loan or use Work Opportunity Credits.

Can I defer payment of employer payroll taxes?
Yes. Employers and self-employed individuals have the ability to defer the employer’s matching portion of FICA (social security). The deferred tax liability would be paid in two installments by December 2021 and December 2022. If the business obtains a PPP loan, the deferral is no longer available once the business receives PPP loan forgiveness.

Were there any modifications for net operating loss (NOL) provisions?
Yes. This provision provides for adjustments to the Tax Cuts and Jobs Act’s (TCJA) 80% taxable income limitation on the use of post-2017 NOLs, and reinstates the ability for taxpayers to carryback post-2017 NOLs.

Net operating losses for 2018, 2019 and 2020 can be carried back for up to five years and if carried forward, can offset 100% of taxable income until 2021.

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Come 2021, losses from pre-2018 can offset up to 100% of post-2020 taxable income, but losses from 2018 forward can only offset 80% of post-2020 income.

I’ve heard there was a correction regarding qualified improvement property. Is that true?
Yes. At long last, the CARES Act fixes the retail glitch. Qualified improvement property (QIP) will be treated as 15-year property. This correction allows taxpayers to apply 100% bonus depreciation to eligible QIP and the changes allow retroactive application.

Has there been a modification of the limitation on business interest?
Yes. The CARES Act makes significant changes to the broadly applicable business interest deduction limitation rules of IRC §163(j). These changes will permit many taxpayers to deduct a greater amount of interest expense.

Were there any changes to the alternative minimum tax (AMT) credit?
Yes. The CARES Act accelerates the payment of the alternative minimum tax (AMT) credit refunds for corporations to 2018 and 2019. Effectively, any remaining minimum tax credit will be fully used by the end of 2019. Alternatively, an election is available to claim the entire credit in 2018.

With all these new business provisions, now is the opportune time to assess your return positions for 2018 and 2019 to take advantage of them. Contact your tax consultant for more information.

At the time of this writing, the implementation of several of the provisions will require additional guidance from Treasury and/or Congress.

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Jackson Thornton provides the information in this article for general guidance only, and does not constitute the provision of tax advice, legal advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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