CARES Act 2021:
Included in the CARES Act are tax and loan provisions intended to provide financial relief to people and businesses suffering as a result of the disease.
- The employee retention credit applies more broadly as a result of changes made by the Consolidated Appropriations Act, 2021.
- The majority of the changes are effective as of January 1, 2021, and impact the first two quarters of the year.
- Note this key retroactive change: employers who took PPP loans are now eligible to take the employee retention credit, so long as the same wages are not used for both.
Employer Payroll Tax Payments:
Employers and self-employed individuals may defer payment of the employer share of Social Security taxes incurred during the dates the CARES Act is being enacted.
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Paycheck Protection Program Loans with Loan Forgiveness:
The Small Business Administration is to provide $349 million in loans to eligible recipients including small businesses, self-employed individuals, and nonprofits. The loan proceeds may be used for payroll, rent, mortgage payments, and utility costs.
Employee Retention Tax Credits:
Eligible employers will be allowed a refundable payroll tax credit equal to 50% of qualified wages paid or incurred.
NOL Carry backs:
Net operating losses (NOLs) that are generated in a taxable year beginning in 2018, 2019, or 2020, maybe carried back five years. As a result, taxpayers with NOLs may be able to file amended returns to carry those NOLs back to previous years to generate immediate refunds.
Non-corporate taxpayers that were subject to these limitations in 2018 may be able to file amended returns to claim such deductions and generate immediate refunds. Taxpayers who have not yet filed a 2019 tax return will be able to submit those tax returns and not be affected by those limitation rules.
Business Interest Modification:
The limitation on business interest deductions enacted as part of the 2017 Tax Cuts and Jobs Act has been increased from 30% to 50% of taxable income for 2019 and 2020. Special rules apply for partners who have accumulated excess business interest.
We work hands-on in diverse industries, and you will get a full range of tax services, including federal, state, and local compliance matters, and technical accounting support for corporate income tax provisions. That’s just the beginning.
No matter how complex the issues, our team develops and executes communication strategies with each client ensuring complex and difficult issues are understood so you can make the most informed decisions.
We can help with comprehensive tax planning and consulting in areas including international cross-border issues, federal and state credits and incentives, multi-state tax issues, tax controversy matters, and more.
The tax relief measures for businesses include a five-year net operating loss carry back, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The Act also provides other non-tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the pandemic. The changes in tax law or rate is reflected in continuing operations, regardless of where the related tax provision or benefit was initially recorded.
Key provisions of the Act:
Under the TCJA, net operating loss (NOL) deductions arising in tax years beginning after Dec. 31, 2017, can offset only up to 80% of future taxable income. The TCJA also prohibits NOL carry backs for NOLs arising in tax years ending after Dec. 31, 2017, but allows indefinite carry forwards.
The Act provides that NOLs arising in tax years beginning after Dec. 31, 2017, and ending before Jan. 1, 2021, may be carried back for five years for all entities, excluding those qualifying as a real estate investment trust (REIT).
The provisions of the TCJA originally provided for 100% expensing, or bonus depreciation, of qualified assets placed in service after Sept. 27, 2017 and before Jan. 1, 2023. An error in the legislative language omitted qualified improvement property (QIP) from the list of properties that qualify for bonus depreciation.
The Act increases the limitation on charitable contribution deductions for corporations making cash contributions in 2020 from 10% to 25% of taxable income, as well as deductions for contributions of certain food inventory from 15% to 25%.
Under the Act, employers are allowed to defer deposits of the 6.2% employer portion of the Social Security tax from the date of enactment through the end of the year.