In our first part of our analysis about how the Coronavirus is impacting people’s US Taxes, I focused on the extension of filing and payment deadlines, as well as the lenience of IRS enforcement during this unprecedented time period. On this blog post, I’ll be discussing some of the tax relief available to US businesses as a result of current legislation.
The Family First Coronavirus Response Act (FFCRA) which passed last week includes refundable tax credits available to businesses and self-employed individuals for qualified sick leave wages and qualified family leave wages. The calculation of these credits can be quite complicated and might not apply to anyone that doesn’t own a US corporation that offers sick and family leave pay to their employees. For anyone that this tax benefit might apply to, you might want to consult with a US licensed attorney who specializes in labor law to make sure your sick leave and family leave policies can qualify for this tax credit. To get these refundable tax credits, an employer or self-employed individual must provide paid sick leave for an employee who is unable to work or telework because:
1. The employee is subject to federal, state or local isolation orders related to the
2. A health-care practitioner advised the employee to self-quarantine from concerns about Coronavirus,
3. The employee experiences symptoms of Coronavirus and sought an actual diagnosis,
4. The employee is caring for an individual subject to an order described in the first two clauses listed above,
5. The employee is caring for the employee’s son or daughter whose school is closed, or the childcare provider is unavailable because of Coronavirus precautions, or
6. The employee experiences other substantial similar conditions to be determined.
The IRS will be releasing documentation requirements to qualify for the credits listed above.
In order to prevent or minimize the adverse impact caused by the economic ramifications of the Coronavirus outbreak, the Coronavirus Aid, Relief and Economic Security (CARES) Act includes some emergency assistance to help small businesses. In addition to the issuance of Small Business Administration Loans to help small to medium sized enterprises make payroll and health insurance premium payments during this time period, the CARES Act includes several tax incentives.
To mitigate the rise of unemployment that will result from the economic slowdown caused by Coronavirus, the CARES Act includes an Employee Retention Tax Credit. This particular tax credit offers all eligible employers a 50% credit on qualified wages paid against employment taxes in a quarter. There is a maximum credit of $10,000 per employee for the year of 2020 that is creditable, which includes the health benefits that are paid on an employee’s behalf. Tax-exempt organizations are also able to take this tax credit. Employers are eligible for this credit if:
· Their operations were fully or partially suspended during a quarter because of a government order,
· Their gross revenue for a quarter is less than 50% of their gross revenue from the same quarter of the prior year, and
· They have not received an SBA Small Business Interruption Loan.
The creditable qualified wages must be paid or incurred after March 12th, 2020 and before January 1st, 2021. If the employer has more than 100 employees, they will receive the credit for the wages paid to employees while they are not providing services because of Coronavirus related issues. For employers with 100 or fewer employees, all of employee wages paid throughout this time period qualify for the credit, regardless if the employer is open for business or forced to close.
To help free up the operational cash flow of businesses impacted by the Coronavirus outbreak; the CARES Act also includes a Payroll Tax Payment Delay. The payment delay applies to 100% of employer payroll taxes incurred between March 27th, 2020 and January 1st, 2021. 50% of the employer payroll taxes incurred during this time period are due by December 31st, 2021 and the remaining 50% payment are due on December 31st, 2022. Similar deferral rules can be applied to self-employment taxes, however this payment delay is not available for any employer or self-employed individual who applies for SBA loan forgiveness under the CARES Act.
The CARES Act also modifies 80% Net Operating Loss (NOL) limitations of taxable income for 2018, 2019 and 2020. NOLs incurred in this time period can be carried back 5 years. The CARES Act retroactively removes the excess loss limitation for 2018, 2019 and 2020. The CARES Act accelerates the corporate minimum tax credit for prior year minimum tax to be fully used for 2019 instead of 2021.
The Tax Cuts and Jobs Act that went into effect January 1st, 2018 limited the interest expense deduction to 30% of a corporation’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The CARES Act increases the interest expense limitation to 50% for years 2019 and 2020, however this is only available for corporations, not partnerships. For business that utilize assets that can be classified as qualified improvement property (QIP), the depreciation schedule is reduced to 15 years from 39 years. QIP is now also available for bonus depreciation. This can be very helpful for businesses such as hotels and restaurants that are shutdown during this time.
Additionally, the CARES Act also included some excise tax exemptions for producers of hand sanitizer that use alcohol and for air transportation for the remainder of 2020.
Since the outbreak of the Coronavirus has been declared a federal disaster under the Stafford Act, one particular provision of the tax code that has been part of the US tax code since the terrorist attacks of September 11th that could be applicable to the Coronavirus economic slowdown is IRC § 139. This tax provision enables an employer to provide qualified disaster relief payments to an employee that are tax-deductible to the employer yet are excludable from income and payroll tax to the employee. Qualified disaster relief payments are:
· Necessary personal, family, living, or funeral expenses incurred as a result of a federal disaster, and
· Reasonable and necessary expenses incurred to repair or rehabilitate a personal residence that is attributable to a federal disaster.
Furthermore, the qualifying disaster relief payment are made by:
· A person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a federal disaster, and
· Federal, state or local government, or agency or instrumentality payments in connection with a federal disaster in order to promote the general welfare.
Businesses can take advantage of this particular provision of the tax law if they provide Coronanvirus cash grants to their employees to be able to pay for:
· Unreimbursed medical expenses.
· Childcare expenses,
· Telecommuting, and
· Other unusual and unexpected expenses related to this public health crisis.
In our next part of our Coronavirus tax relief correspondence, we’ll discuss the Federal stimulus payments and other provisions that are intended to provide US individuals with relief because of this national crisis.