As a result of the stimulus package, the following tax credits and provisions will become available to businesses.
Business Tax Credits:
Section 2301: Employee Retention Credit for Employer Subject to Closure due to COVID-19
Eligible employer allowed credit against applicable employment taxes for each calendar quarter equal to 50% of qualified wages for each employee for such calendar quarter;
The amount of qualified wages for any employee taken into account by the employer for all calendar quarters is limited to $10,000.
The credit is limited to the employment taxes owed after reduced by credits taken (including the Sick Leave and Family and Medical Leave credits under the Families First Coronavirus Response Act) for all employees of eligible employer for such calendar quarter. If the credit exceeds this amount, the difference is an overpayment which can be refunded.
Eligible employer is one who (a) was carrying on a trade or business during calendar year 2020; (b) with respect to any calendar quarter for which (i) operation is fully or partially suspended due to orders from an appropriate government authority limiting commerce, travel, or group meeting due to COVID-19 or in which (beginning in first calendar quarter after 12/31/2019) there has been a significant decline in gross receipts (i.e., less than 50% gross receipts for the same quarter in the prior year and ending with the calendar quarter for which gross receipts are greater than 80% of the same calendar quarter in prior year.
For tax exempts, the trade or business and COVID-19 related limitations are considered to apply to all such entities
Sec 2302: Employers and self-employed individuals - can defer the payment of employment taxes to the following two years with 50% required to be paid on 12/31/2021 and the balance on 12/31/2022.
Despite any other provision of law, payment for “applicable employment taxes” for the “payroll tax deferral period” is not due before the “Applicable Date”.
Applicable Employment Taxes are taxes imposed under sec 3111(a); 3211(a)
Payroll Tax Deferral Period – period beginning on date of enactment to 1/1/2021
Limitations on the amount the employer can pay in FMLA ($200 per day and $10,000 in aggregate) and Emergency Sick Leave ($511 per day and $5,110 in total for certain employees and $200 per day and $2,000 total for other employees) are again included in these provisions. For more information on these provisions, click here.
Waiver of penalties on anticipating the payroll tax credit for not making proper payroll tax deposits.
Self-employed individuals will receive equivalent credits
Credits will be available to offset self-employment tax on individual income tax returns
Quarterly estimates may be reduced accordingly
Employers may make payments for paid leave to unions provided the unions enable employees to receive these payments directly from them.
Other Business Tax Provisions
Sec 2201: Corporations - can defer payment of estimated tax payments due after date of enactment to October 15, 2020 with no cap.
Sec 2303: NOL limitation rules are relaxed
Losses from 2018, 2019 or 2020 (tax years beginning before 1/1/2021) can be carried back five years
The limit on use of NOLs is also temporarily removed so that the NOL can fully offset income
Sec 2304: NOLs - for pass-through businesses and sole proprietorships can be used under the rules of Sec 2303 above. This is done by amending section 461(l)(1) by striking December 31, 2017 and inserting December 31, 2020.
Sec 2305: Corporate AMT refund is accelerated (do not need to wait until 2021).
4-year period 2018. 2019, 2020 or 2021 is replaced by 2018 and 2019 (making the balance refundable in 2019)
There is an election to take the entire refundable amount in 2018
Sec 2306: Temporary increases to the interest expense limits - for 2019 and 2020 from 30% to 50% of adjusted taxable income.
Sec 2307: Qualified Investment Property - for businesses (especially in the hospitality industry) can be written-off (vs 39-year life) – corrects error in useful life starting in 2018 and allows amendment of prior year return.
Industry Specific Loan Guarantees
$208 billion allocated in loan guarantees for industries harmed by the COVID-19 virus, including $50 billion for airlines, $8 billion for cargo carriers, and $150 billion for unnamed businesses.
Your professionals at Castellano Korenberg & Co. are always available to assist you through this tough time of trying to make sense of all the new regulations being passed. Stay up to date with the most recent information by visiting our Coronavirus Resource page on our website, call us at 516-937-9500, or contact your CK professional for more information.