As indicated in our previous publication, Coronavirus Aid, Relief and Economic Securities (CARES) Act, the $2.2 trillion bill is complex legislation affecting nearly all taxpayers and many businesses. Expanding on our prior communications, below is a breakdown of some of the key aspects of the legislation.
New law: Credit
allowed for 2020. Under the CARES Act, an eligible individual is allowed an
income tax credit for 2020 equal to the sum of
- $1,200 ($2,400 for eligible individuals filing a joint return) plus:
- $500 for each qualifying child of the taxpayer (as defined under Code Sec. 24(c) for purposes of the child tax credit).
New law: No 10% additional tax for Coronavirus-related retirement plan
distributions
New law: The CARES Act provides that the RMD requirements do not apply for calendar year 2020 to:
- A defined contribution plan described in Code Sec. 403(a) or Code Sec. 403(b);.
- A defined contribution plan which is an eligible deferred compensation plan described in Code Sec. 457(b) but only if such plan is maintained by an employer described in Code Sec. 457(e)(1)(A); or
- An individual retirement plan. (Code Sec. 401(a)(9)(I)(i), as amended by Act Sec. 2203(a))
New law: The
CARES Act adds a deduction to the calculation of gross income, in the case of
tax years beginning in 2020, for the amount (not to exceed $300) of qualified
charitable contributions made by an eligible individual during the tax year.
(Code Sec. 62(a)(22), as amended by Act Sec. 2204(a))
For this purpose, the term "eligible individual" means
any individual who does not elect to itemize deductions.
New law: The CARES Act provides that (except as stated below) qualified contributions are disregarded in applying the 60% limit on cash contributions of individuals and the Code Sec. 170(d)(1) rules on carryovers of excess contributions. (Act Sec. 2205(a)(1))
- Background. An employee's gross income doesn't include up to $5,250 per year of employer payments, in cash or kind, made under an educational assistance program for the employee's education (but not the education of spouses or dependents). (Code Sec. 127)
New law: The CARES Act adds to the types of educational payments that
are excluded from employee gross income" eligible student loan
repayments" (below) made before January 1, 2021. The payments are subject
to the overall $5,250 per employee limit for all educational payments
New law: This
provision provides a refundable payroll tax credit for 50% of wages paid by
eligible employers to certain employees during the COVID-19 crisis. (Act Sec.
2301(a))
New law: The CARES Act allows taxpayers to defer paying the employer
portion of certain payroll taxes through the end of 2020.
New law. The
CARES Act temporarily removes the taxable income limitation to allow an NOL to
fully offset income. (Code Sec. 172(a), as amended by Act Sec. 2303(a)(1))
New law: The CARES Act provides that NOLs arising in a tax year
beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to
each of the five tax years preceding the tax year of such loss
New law: Thus,
the CARES Act allows corporations to claim 100% of AMT credits in 2019.
New law: The CARES Act temporarily modifies the loss limitation for
noncorporate taxpayers so they can deduct excess business losses arising in
2018, 2019, and 2020.
New law: The CARES Act temporarily and retroactively increases the
limitation on the deductibility of interest expense under Code Sec. 163(j)(1)
from 30% to 50% for tax years beginning in 2019 and 2020.
New law: The CARES Act provides a technical correction to the TCJA, and
specifically designates Qualified Improvement Property as 15-year property for
depreciation purposes