Title II – Assistance for American Workers, Families, and Businesses, Subtitle C – Business Provisions

Early in the morning on Thursday, March 26, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  On Friday, March 27, 2020, the House of Representatives also passed the CARES Act and President Trump quickly signed it into law the same day.

In this continuing series of blogs by lawyers at Forrest Firm, P.C., we will examine the most important, relevant, and impactful provisions of the CARES Act.  Our goal is not to provide you with a granular level examination of each provision of the CARES Act, but rather to provide a macro view of the CARES Act in clear, concise, and understandable language that will enable readers to move forward with their businesses and lives with confidence.  These are trying times, and here at Forrest Firm we want these articles to support our clients, positively impact our communities, and be available to help you with questions and concerns raised by the CARES Act.

The CARES Act includes a number of provisions to provide financial assistance to businesses.  

50% Employee Retention Payroll Tax Credit for Closed Employers.  Section 2301 of the CARES Act provides eligible employers with a refundable payroll tax credit equal to 50% of certain qualified wages paid to employees from March 13, 2020 through December 31, 2020.  Eligible employers are employers (1) whose business is fully or partially suspended due to a governmental order related to the coronavirus or (2) whose gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. 

The amount of the credit is based on qualified wages paid to employee, is capped at $5,000 per employee, and the total credit for an employer may not exceed the total employment taxes for all employees for each quarter.  For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit.  For employers with more than 100 employees qualified wages include wages paid to employees only when they are not providing services due to coronavirus related circumstances.

Section 501(c) tax-exempt organizations are eligible for the credit, but governmental entities and companies receiving small business interruption loans under the CARES Act are not

Delay of Payment of Employer Payroll Taxes.  Section 2302 of the CARES Act allows employers and self-employed individuals to defer payment of the employer share of the 6.2% Social Security tax paid with respect to their employees in 2020.   Employers must repay the deferred tax over two years, with half due by December 31, 2021 and half due by December 31, 2022.

Net Operating Losses.  Section 2303 of the CARES Act relaxes limitations on net operating losses (“NOL”). Under the CARES Act, an NOL arising in 2018, 2019, or 2020 can be carried back five years and temporarily allows a corporate NOL to fully reduce taxable income (rather than only 80% of taxable income under current law). Corporate taxpayers have 120 days to make the election to forego the carryback.  

Excess Business Losses for Noncorporate Taxpayers.  Section 2304 of the CARES Act modifies the loss limitation rules applicable to pass-through businesses and sole proprietors.  Under the Tax Cut and Jobs Act, Internal Revenue Code section 461(l)(1) disallowed business losses in excess of $250,000 for a single taxpayer and $500,000 for a married couple filing jointly.  The CARES Act, however, suspends this rule for 2018, 2019, and 2020.

Modification of Credit for Prior Year Minimum Tax Liability of Corporations.  The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021.  Section 2305 of the CARES Act accelerates the ability of companies to recover the AMT credits by claiming a refund immediately.

Modification of Limitation on Business Interest Deduction.  Section 2306 of the CARES Act increases the amount of interest expense businesses are may deduct on their tax returns from 30% of adjusted taxable income to 50% of adjusted taxable income for 2019 and 2020.  As a result, business taxpayers will be able to deduct additional interest expense enabling them to increase liquidity in order to continue operations and keep employees on payroll.  Notably, the increase in the limitation applies to partners in partnerships only in 2020 and not in 2019, along with other special rules.

Amendment Regarding Qualified Improvement Property.  Section 2307 of the CARES Act provides a technical correction to the Tax Cuts and Jobs Act and is retroactively effective to the date of enactment of the Tax Cuts and Jobs Act.  The provision enables businesses to immediately write off costs associated with improving nonresidential real property instead of having to depreciate those improvements over the 39-year life of the real property. 

Temporary Exception from Excise Tax for Alcohol Used to Produce Hand Sanitizer.  Section 2308 of the CARES Act waives the federal excise tax on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020.

If you have any questions, please do not hesitate to contact Brian Bernhardt for more information.