Expanded CARES Tax Relief Information for Small Business Owners

Expanded CARES Tax Relief Information for Small Business Owners


The CARES Act includes business tax relief including employee retention credits, delayed payroll payments, increased business interest deductibility, and accelerated recovery of alternative minimum tax credits among other forms of relief. The following paragraphs summarize those provisions.

Employee Retention Credit for Employers Subject to Closure or Experiencing Economic Hardship

The Employee Retention Credit provides a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.

Wages of employees who are furloughed or face reduced hours as a result of their employer’s closure or economic hardship are eligible for the credit.

Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.

NOTE:

  • The credit is not available to employers receiving assistance through the Paycheck Protection Program.
Delay of Payment of Employer Payroll Taxes

This provision allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.

NOTE:

  • Deferral is not provided to employers receiving assistance through the Paycheck Protection Program.

 Net operating losses: The bill temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback).

Excess loss limitations:

The bill repeals the excess loss limitation. Sec. 461(l) which was added to the Code by the law known as the Tax Cuts and Jobs Act (TCJA) 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).

The CARES Act retroactively removes that impact by providing those taxpayers with refunds for 2018 and 2019, and removes excess business loss limits in 2020.  The Act specifically accomplishes this by:

  • Eliminating “excess business loss” limitations for taxable years 2018, 2019, and 2020;
  • Clarifying that deductions under Sections 172 and 199A are not taken into account in determining the amount of a taxpayer’s deductions used to calculate its “excess business loss”;
  • Providing that neither deductions, gross income, nor gains from employee services are included in the excess business loss calculation; and
  • Adding provisions relating to the application of capital gains and losses in determining a taxpayer’s excess business loss.

Corporate alternative minimum tax (AMT):

CARES Act has modified the AMT credit for corporations to make it a refundable credit for 2018 tax years.

Again, you’ll have to go back to the TCJA which repealed the corporate AMT and allowed corporations to fully offset regular tax liability with AMT credits. Any remaining AMT credit amount became refundable incrementally from 2018 through 2021. The CARES Act accelerates the refund schedule, permitting corporate taxpayers to claim the refund in full in either 2018 or 2019. Taxpayers wishing to accelerate an AMT credit refund for 2018 may use a quick refund procedure (e.g., Form 1139) to claim these credits.

Interest limitation:

The CARES Act increases the business interest expense limitation of Section 163(j) (as amended by the TCJA) from 30% to 50% of adjusted taxable income (i.e., effectively EBITDA) for tax years beginning in 2019 and 2020. For these tax years, taxpayers subject to the limitation (generally, taxpayers with average annual gross receipts for the prior three tax years below $26 million) may now deduct business interest expense up to 50% of their adjustable taxable income. However, taxpayers may still elect to apply the 30% limitation. In the case of a partnership, the election must be made by the partnership.


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