COVID-19 Tax and Other Business Relief and Shelter OrdersUpdated March 26, 2020
Hawkins Parnell & Young's national corporate and taxation team continues to monitor the evolving COVID-19 situation in the United States. We are actively advising clients around the country regarding the rapidly emerging legislation and regulation impacting their shelter in place and tax obligations and related business services matters. Contact David R. Johanson for assistance navigating tax relief and related issues arising from COVID-19.
WHAT BUSINESSES NEED TO KNOW ABOUT COVID-19 TAX RELIEF
MARCH 26, 2020: The tax relief and stimulus recovery bill denominated as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed in the Senate late yesterday and is expected to be passed by the U.S. House of Representatives (the “House”) in the next few days. Businesses should evaluate their opportunities for relief under the proposed CARES Act, their obligations under the Families First Coronavirus Response Act, H.R. 6201 (the “FFCRA”) enacted on March 18, 2021, and the availability of tax credits under the FFCRA, and the impact of the Internal Revenue Service (“IRS”) announced delays for tax filing.
FFCRA TAX CREDITS
President Trump signed into law the FFCRA. Employers have fifteen days to comply with most provisions of the law, which will remain in effect until December 31, 2020. The FFCRA implements mandatory emergency paid sick leave (“EPSL”) and expanded family and medical leave (“FMLA”) coverage to employees of specified employers. Employers who are required to provide their employees with EPSL and/or paid FMLA may apply for and receive certain tax credits for those payments. The amount of the credit is 100% of the amount of qualified sick leave wages paid by an employer for each calendar quarter. The tax credit is allowed against the tax imposed by Section 3111(a) (the employer portion of Social Security taxes). For more on the FFCRA, click here. The CARES Act pending enactment by the House provides for an advance refund of the payroll credit and waives all penalties and interest associated with failure to deposit payroll taxes in light of a pending credit.
The Department of Treasury, the Internal Revenue Service (the “IRS”), and the U.S. Department of Labor issued IR 2020-57 to provide initial guidance regarding how employers can begin to take advantage of the two new refundable payroll tax credits under FFCRA. Businesses can retain and access funds which they otherwise would have to pay to the IRS in payroll taxes and obtain an expedited advance from IRS by submitting a streamlined claim form that will be released in the coming weeks. IR 2020-57 also clarifies that here will be a 30-day non-enforcement period for “good faith” compliance efforts by employers.
CARES ACT PENDING RELIEF
The Senate approval of the $2 trillion relief package on March 25, 2020, provides emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic and is expected to be followed by swift passage of the bill in the House and approval by the President. The key business provisions in this bill are loans to distressed companies and lending programs for small businesses that continue to pay their workers over the duration of the crisis and an employee retention credit. The loans are structured as federally guaranteed loans under the Small Business Act that will be forgiven and is contingent on continuing employment of the workforce for the business borrowing the loan. The loan opportunities are currently available through June 30, 2020, and are tied to the maximum amount to pay operational costs including payroll, rent, health benefits, utilities and insurance premiums.
Employee Retention Credit: The Cares Act creates an employee retention credit for employers that close due to the coronavirus pandemic. The bill broadly defines eligible employers and provides for a credit against employment taxes equal to 50% of qualified wages for each employee; however, employers with 100 or fewer employers will receive a credit for 100% of qualified wages.
Net Operating Losses: Businesses with losses arising in 2018, 2019 or 2020 can seek a five-year carryback of net operating losses and the 80% limit on Net Operating Loss (“NOL”) deductions is repealed for years prior to 2021. Furthermore, highly leveraged businesses subject to the interest deduction limits of 30% of adjusted taxable income will benefit from the increase of the limit to 50% of adjusted taxable income in 2019 and 2020.
Payroll Tax Delay:The Cares Act delays payment of 50% of 2020 employer payroll taxes until December 31, 2021; the other 50% will be due December 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
Excess Loss Limitations: The Cares Act repeals the excess loss limitation that was added to the Internal Revenue Code of 1986, as amended (the “Code”) by the Tax Cuts and Jobs Act, and it disallows excess business losses of noncorporate taxpayers if the amount of the loss exceeds $250,000 ($500,000 for married taxpayers filing jointly).
Corporate Alternative Minimum Tax (“AMT”): The Cares Act repeals the disallowance of corporate AMT credits that was part of the Tax Cuts and Jobs Act and allows for emergency refundable credits.
Other Individual Tax Relief: The Cares Act provides additional individual relief subject to income caps in the form of recovery rebate credits of $1,200 ($2,400 for joint filers), lifting of the limits on charitable contributions for 2020 from 50% of Adjusted Gross Income to 100% of Adjusted Gross Income, and, for tax years beginning in 2019 and 2020, the adjusted taxable income percentage is increased from 30% to 50%. Also, taxpayers may elect to use 2019 income in place of 2020 for the computation.
IRS ANNOUNCES DELAYED TAX DEADLINES AND EXPANDS ITS INITIAL RELIEF
The IRS issued Notice 2020-18 on March 20, 2020, clarifying several Coronavirus-related tax filings and payment issues that arose from the relief granted in Notice 2020-17 on March 18, 2020. Notice 2020-18 supersedes Notice 2020-17. The April 15, 2020, due date for both filing a federal income tax return and making federal income tax payments is automatically postponed to July 15, 2020, in Notice 2020-18. The IRS Extension Forms (Forms 4868 or 7004) are not required in order to get the benefit of this automatic filing date extension. Notice 2020-17 had previously extended the filing deadline but not the payment obligations. Under the new guidance in Notice 2020-18, there is no limitation on the amount of the payment that may be postponed. Any amounts due will not be subject to interest, penalties or additions to tax through July 15, 2020. The provisions of Notice 2020-17 that imposed dollar caps on the deferral ($10 million for a C corporation and $1 million for other filers) are superseded. Today the IRS issued further guidance on the scope of Notice 2020-17 in a series of questions and answers, including confirmation that the 2019 deadline for individual retirement account contributions is extended from April 15, 2020 to July 15, 2020.
Notably, the questions and answers clarify that no automatic extension is applicable for IRS Form 5500 filings and that the deadline for the return of 2019 excess deferrals (and related income) to a 401(k) plan remains at April 15, 2020.
Please note that many states relay on federal extension filings and individual state obligations should be reviewed to ensure compliance. State actions are expected to lag federal directions. That said, they likely will be similar in relief.
SHELTER IN PLACE AND ESSENTIAL BUSINESS SERVICES GUIDANCE
The effort to curb the spread of the Coronavirus has resulted in various State and Local “Stay at Home” or “Shelter in Place” Orders and related Federal and State guidance. At times, these Orders and guidance seemingly conflict, leaving our clients with questions whether they qualify as an Essential Business on a local, statewide and/or national basis, and what, if anything, their employees are permitted to do in their physical place of business or elsewhere outside of their homes. Hawkins Parnell is providing very timely advice to its clients regarding their rights and obligations in this challenging and continually evolving environment. This remains a very fluid situation and the Stay at Home and Shelter Orders and Guidelines are subject to change at any time.