Congress Passed COVID-19 Economic Stimulus Package, Expands Assistance for Businesses by Edward N. Cooper, CPA
Posted on March 30, 2020
As the number of COVID-19 cases in the U.S. continues to increase, Congress on March 27 approved its third stimulus package to provide more than $2 trillion in much-needed financial relief to U.S. businesses and families.
Following is a brief overview of some of the business-friendly provisions included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and how they may affect your company. This does not include all the previously announced relief and government-backed stimulus measures, including the postponement of the 2019 federal income tax filing deadline to July 15, 2020, for many taxpayers. Moreover, it is important for all business owners to recognize that this information may change as the IRS and other government agencies determine how they will eventually carry out the new law.
Availability of Expanded Small Business Loans
The Small Business Administration (SBA) has expanded the previously announced Economic Injury Disaster Loan (EIDL) program, waiving restrictions on low-interest loans to small businesses and non-profits with 500 employees or less, including independent contractors, sole-proprietors and tribal businesses.
The CARES Act also introduces a Paycheck Protection Program (PPP), offering more than $350 billion in potentially forgivable loans to small businesses, including sole-proprietors and independent contractors, as well as non-profits that continue to employ and pay workers through this emergency period. These loans are also available to certain companies in the accommodation and food service industries, which, as defined by Sector 72 of the North American Industry Classification System (NAICS), include hotels, restaurants and franchisors that may have more than 500 employees overall, but less than 500 employees at each of their physical locations.
Employee Retention Payroll Tax Credit
Eligible businesses that retain employees through this crisis may receive a refundable tax credit for up to 50 percent of the wages they pay to each of those workers beginning after March 12, 2020. The credit would apply to businesses that experience a COVID-19-related partial or full suspension of operations, or whose gross receipts decline more than 50 percent compared to the same period in the prior year.
Employer Deferral of Payroll Tax Payments
Small business employers and self-employed taxpayers will have the option to defer paying their share of employees’ Social Security and Medicare taxes (6.2 percent of wages) for all of 2020. The first half of the deferred amount would be due on Dec. 31, 2021, with the remaining balance payable by Dec. 31, 2022.
Carrybacks of Net Operating Losses (NOL)
The CARES Act would allow taxpayers to carry back net operating losses (NOLs) from tax years 2018, 2019 and 2020 for up to five previous years. These carrybacks, which businesses may use to reduce taxable income in prior years, were previously suspended under the Tax Cuts and Jobs Act (TCJA). In addition, the new law suspends the 80 percent taxable income limit on NOLs for tax years beginning before 2021.
Increased Limits for Business Interest Deductions
The CARES Act amends existing law and increases the amount that businesses can deduct as interest expense from 30 percent of adjusted taxable income (ATI) to 50 percent of ATI for tax years 2019 and 2020. Taxpayers have the option to elect out of the increased limitation. However, any election to use the higher limit to deduct interest on loans and other debt instruments in one year over another should be made only after careful analysis of how this provision will apply to specific entities with different structures. For example, some taxpayers with annual average gross receipts of $26 million or less may be exempt.
Qualified Improvement Property
The law provides a 15-year recovery period for qualified improvement property (QIP), allowing taxpayers to claim 100 percent bonus depreciation and immediately write-off costs incurred to improve the interior of nonresidential property. In interpreting this provision, the IRS may apply it retroactive to Jan. 1, 2018, which could provide significant savings to taxpayers with commercial property interests, who could amend previously filed tax returns.
Lifted Restrictions on Excess Business Losses
Non-corporate taxpayers, operating as sole-proprietors or who own businesses through pass-through entities, which include S corporations, LLCs and partnerships, will not be subject to previously enacted limitations on pass-through losses for tax years 2018 through 2021.
Funding for State and Local Governments
The federal government will distribute more than $150 billion to state, local and tribal governments to help them manage the impact of the crisis on their local communities. These funds, which will be allocated based on population figures, may be used to purchase equipment or employ the services of government contractors.
About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.