There has been much discussion concerning the provisions for loan relief and payroll tax credits for businesses [1] and the economic stimulus checks for individuals [2]. But there are several other provisions geared towards individual and businesses taxes:
INDIVIDUAL PROVISIONS
Charitable deduction liberalizations:
- For 2020, individuals will be able to claim a $300 above-the-line deduction for cash contributions
- 60% limitation on charitable deductions doesn’t apply to cash contributions made in 2020
Early withdrawals from IRAs and qualified retirement plans:
- The 10% early withdrawal penalty will not apply to distributions made in 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus
- Penalty-free portion is limited to $100,000
- Distributions may be re-contributed in one or more payments at any time within 3 years of the disbursement
- If not recontributed, taxable income is reported equally over three years, unless the taxpayer elects out
- Employers may amend defined contribution plans to provide for these distributions
- Employer retirement plans can allow for increased loan amounts
Waiver of required minimum distribution (RMD):
- Required minimum distributions for 2020 are waived
- Includes an RMD that was required by 4/1/20, due to the account owner’s having turned age 70½ in 2019
- If a 2020 RMD has been taken already, it can be redeposited as long as within 60 days of the distribution
Student Loan Payments – Payments on federal student loans, including direct loans, Perkins loans and Federal Education Loans, are automatically suspended from March 13 through September 30, 2020. Additionally, interest will NOT accrue during this time. Any elective payments made during this time will all go towards principal.
Exclusion for employer payments of student loans – An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. 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 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 for nonprescription medical products be treated as paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
BUSINESS-ONLY PROVISIONS
Net operating losses carryback – NOLs arising in tax years 2018 through 2020, can now be carried back 5 years, and without the 80% limitation put in place by the 2017 tax changes.
Net operating loss carryforward:
- For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income
- For tax years beginning 2021 and after, taxpayers will be eligible for:
- a 100% deduction for NOLs arising in tax years before 2018; and,
- a deduction limited to 80% of taxable income for NOLs arising in tax years 2018 and after
Excess business loss limits – The CARES Act retroactively turns off the excess active business loss limitation rule of the 2017 Tax Law for years 2018 through 2020. Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed and treated as NOL carryforwards in the following tax year. The rule resumes in 2021.
Acceleration of corporate AMT liability credit – The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject through 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.
Business interest deduction limit – The CARES Act allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of Adjusted Taxable Income (ATI) for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. However, certain limitation apply to partnerships.
Faster write-offs for interior building improvements – The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats qualified improvement property (QIP) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for most previously eligible leasehold, restaurant and retail improvements (for taxpayers that decline bonus depreciation and decline or are ineligible for expensing under Code Sec. 179 [3]).
Pension funding delay – The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest.