Welcome to B. Johnson & Assoc., Ltd.
Dear Client,
We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. We want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.
The following are brief summaries of each item in the CARES Act – for more detailed information, please visit https://www.congress.gov/bill/116th-congress/senate-bill/3548/text or the IRS information site at www.irs.gov/coronavirus.
Recovery rebates for individuals.
To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).
Waiver of 10% early distribution penalty.
The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived (however, regular income tax still applies) for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual).
Charitable deduction liberalizations.
The CARES Act makes four significant liberalizations to the rules governing charitable deductions.
Exclusion for employer payments of student loans.
The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.
Break for remote care services provided by high deductible health plans.
For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.
Break for nonprescription medical products.
For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription.
Business only provisions:
Employee retention credit for employers.
Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.Delayed payment of employer payroll taxes.
Taxpayers (including self-employed) will be able 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.
Net operating loss liberalizations.
The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax
The Act also temporarily liberalizes the treatment of NOL carryforwards.
Technical correction to restore faster write-offs for interior building improvements.
The CARES Act makes a technical correction to the 2017 Tax Law.
Accelerated payment of credits for required paid sick leave and family leave.
The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.
Certain SBA loan debt forgiveness isn’t taxable.
Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes.
Here are some informational links that may help to clarify other items available during the COVID-19 pandemic:
- Minnesota Unemployment Insurance
- Families First Coronavirus Response Act
- Economic Impact Payments
- SBA Payroll Protection Program
- SBA Economic Injury Disaster Loan (EIDL)
- MN Employment and Economic Development Small Business Emergency Loans
- US Chamber Small Business Emergency Loans
Further guidance will be available in the coming weeks. We are always here to advise and help you understand what options could be of assistance to you during this time.
Sincerely,