Summary of Tax Provisions within the CARES Act
As COVID-19 continues to upend nearly every aspect of life in the United States, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in an attempt to get funds out to individuals.
Following are some of the key tax provisions of the CARES Act for your immediate consideration and we will continue to update you as new information becomes available. A white paper with expanded explanations will follow shortly.
1. Required Minimum Distributions (RMDs) are waived for 2020 (this may provide an opportunity to increase Roth conversions to use the lower tax brackets that otherwise would be used by RMDs)
a. This includes anyone who deferred their first RMD from 2019 (the April 1 deadline).
b. Includes inherited IRA RMDs
2. Tax return deadline delayed from 4/15 to 7/15
a. Including payments due for that return
b. Including prior year retirement plan and HSA contributions
c. Not all states though have signed on to the extended date
3. 4/15 estimated payments delayed until 7/15
a. 6/15 estimated tax payments though have yet to be clarified
4. Charitable changes:
a. Above-the-line deduction for up to $300 of charitable gifts (this is a permanent change)
b. 50% AGI limit on cash charitable contributions suspended for 2020 for individuals (corporate 10% limit increased to 25%)
5. Employers can contribute up to $5,250 annually toward an employee's student loans and it is not included in the employee's income (2020 only – for now).
6. Loans/withdrawals from retirement plans:
a. 10% early withdrawal penalty waived on withdrawals up to $100,000 for "corona-related purposes."
b. Income attributable to such distributions would be subject to tax over three years
c. Funds may also be recontributed within three years "without regard to that year's cap on contributions."
7. Payroll taxes:
a. Refundable payroll tax credit for 50 percent of wages paid by employers to employees, if 1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or 2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
b. For eligible employers with 100 or fewer full-time employees whether the employer is open for business or subject to a shut-down order is irrelevant.
c. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
d. Employers and self-employed individuals can defer payment of the employer share of the Social Security tax (6.2%). Half to be repaid by 12/31/21 and the other half by 12/31/22.
8. Net operating losses (NOL) from a tax year beginning in 2018, 2019, or 2020 can be carried back five years, and the taxable income limitation temporarily removed as well. (You may remember the Tax Cuts and Jobs Act of 2017 removed NOL carrybacks.)
9. Correction of the oversight (from the Tax Cuts and Jobs Act of 2017) that disallowed expensing of qualified improvement property corrected.
10. Pertaining to federal student loans:
a. Interest on all federal student loans is waived through Sept. 30th
b. Borrowers may skip payments through Sept. 30th. Info circulating last week was that borrowers could be granted an emergency 60-day forbearance upon request that would be automatically applied after 31 days of delinquency, but it seems this has been updated to 6 months.
c. Skipped payments will still qualify for PSLF
d. Collection of federal student loan debt is suspended
With offices in Williston and Rutland Vermont, Davis & Hodgdon Associates CPAs is now assisting small business and individual clients with navigating through all of the new tax law changes. Call our office at 802.878.1963 (Williston) or 802.775.7132 (Rutland) today to find out how we can help you and your small business through the process.