Hawthorne & Co. CPAs

Tax Relief Provided by the CARES Act

Dear Valued Clients and Friends,
 
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that we previously posted about, we now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Click on a "Learn More" button to open a PDF with more information on each topic.

Recovery Rebates for Individuals

To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. 

Waiver of 10% Early Distribution Penalty

The additional 10% tax on early distributions from IRAs and defined contribution plans is waived for distributions made between January 1 and December 31, 2020 by a qualified individual.

Waiver of Required Distribution Rules

Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans and IRAs are waived.

Charitable Deduction Liberalizations

The CARES Act makes four significant liberalizations to the rules governing charitable deductions.

Exclusion for Employer
Payments of Student Loans

The CARES Act expands the definition of expenses qualifying for the exclusion.

Break for Remote Care Services Provided by High Deductible Health Plans

For plan years beginning before 2021.

Break for Nonprescription Medical Products

For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription.

Business Only Provisions

Employee Retention Credit for Employers

Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security payroll tax for 50% of certain wages paid to employees during the COVID-19 crisis.

Delayed Payment of Employer Payroll Taxes

Taxpayers will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022.

Net Operating Loss Liberalizations

For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years.

Deferral of Noncorporate Taxpayer Loss Limits

The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l).

Acceleration of Corporate AMT Liability Credit

The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable.

Relaxation of Business Interest Deduction Limit

The CARES Act generally allows businesses, to increase the interest limitation to 50% of ATI for 2019 and 2020.

Technical Correction to Restore Faster Write-Offs for Interior Building Improvements

The CARES Act makes a technical correction to the 2017 Tax Law.

Accelerated Payment of Credits for Required Paid Sick Leave and Family Leave

The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits.

Pension Funding Delay

The CARES Act gives single employer pension plan companies more time to meet their funding obligations.

Certain SBA Loan Debt Forgiveness Isn’t Taxable

Loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income.

Suspension of Certain Alcohol Excise Taxes

The CARES Act suspends certain alcohol taxes on spirits.

Suspension of Certain Aviation Taxes

The CARES Act suspends certain excise taxes on air transportation.

IRS Information Site

Ongoing information on the IRS and tax legislation response to COVID- 19 can be found at  https://www.irs.gov/coronavirus.

Please contact our office if you have any questions or concerns.

 
Sincerely,
 
David D. Hawthorne, CPA
President

** This information is provided for general educational purposes only. Before taking any action based on this information, we strongly encourage you to consult with a professional accounting advisor about your specific situation.

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