The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020, not only provides significant financial relief to individuals and businesses, but it also contains tax law changes to help everyone coping with Coronavirus. Below is a summary of the key provisions impacting individuals and businesses.
Individual Provisions
Waiver of 10% early distribution penalty: The additional 10% tax on early distributions from IRAs and defined contribution plans, such as a 401(k), is waived for distributions made between 1/1/2020 –12/31/2020 by a someone who (or whose family) is infected with or is economically harmed by the Coronavirus.
Waiver of required distribution rules: Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans, such as 401(k), and IRAs are waived.
Charitable deductions: Individuals will be able to claim a $300 above-the-line deduction for cash contributions made to public charities in 2020. Also, the limitation on charitable deductions based on adjusted gross income doesn’t apply to cash contributions made in 2020.
Break for nonprescription medical products: Beginning in 2020, amounts paid from HSAs and MSAs are to be treated as paid for medical care even if they aren’t paid under a prescription plan. The same applies to reimbursements from Flexible Spending Arrangements and HRAs made in 2020.
Business Provisions
Employee retention credits: Eligible employers can qualify for a refundable credit against their portion of the Social Security payroll tax for up to 50% of certain wages paid to employees during the COVID-19 crisis.
Delay of employer payroll tax payments: Employers can defer payment of the employer portion of Social Security and RRTA taxes and self-employed individuals can defer payment of certain self-employment taxes through the end of 2020.
Advance refund of credits for sick and paid leave: Employers, who paid qualified sick and family leave wages under the Families First Coronavirus Response Act (FFCRA), are eligible for an advance refund of credits against certain payroll taxes paid on those wages.
Changes to net operating loss (NOL) rules: For NOLs arising in tax before 2021, taxpayers can now carryback 100% of NOLs to the prior five tax years. Also, for tax years before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income, rather than the present 80% limit.
Temporary increase in the deductibility of interest expense: Businesses may increase the interest limitation from 30% to 50% of adjusted taxable income (ATI) for 2019 and 2020 and elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020.
Bonus depreciation now available for interior building improvements: The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats a wide variety of certain building improvements as eligible for bonus deprecation, allowing for a 100% write-off.
For more information, contact your Bothell Accountant at Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your bookkeeping, accounting, personal tax preparation & business tax preparation, and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kirkland, Kenmore, Mill Creek and surrounding areas.