Dear Valued Clients and Friends of Burkhart & Company,
The COVID-19 crisis has given rise to unprecedented economic relief legislation. It is important that every business owner and individual, whether employed or not, come to understand what provisions apply to them. We have listed in brief summary many of the key provisions enacted at Federal and Tennessee governmental levels. This includes the Coronavirus Aid, Relief, and Economic Security Act (CARES) and the Families First Coronavirus Response Act.
These are new laws, and we are still awaiting regulations and further guidance in many areas. Application of any of these provisions should be evaluated on a case-by-case basis as there may be complex rules for eligibility that are not making the headlines.
Please reach out to us with any questions or if you would like more information about how the various relief provisions will affect you or your business. You can also check our website for more updates as new relief measures are taken.
SBA Economic Injury Disaster Loans
- The Small Business Administration is offering loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19.
- The loans offer up to $2 million in assistance to help pay fixed debts, payroll, and other expenses.
Extended Tax Deadlines
- The deadlines for filing and paying the following taxes have all been postponed from April 15, 2020, to July 15, 2020:
- Federal income taxes
- Federal gift and GST taxes
- Federal first quarter estimated income tax payments
- Tennessee franchise and excise tax
- Tennessee Hall income tax
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
- Paycheck Protection Program – Impacted businesses with less than 500 employees (with some exceptions) are eligible for loans up to 2.5 times the borrower’s average monthly payroll costs, but cannot exceed $10 million. Subject to limitations, amounts spent during the 8-week period beginning on the loan origination date for payroll costs, mortgage interest, rent, and utilities are eligible to be forgiven.
- Employee Retention Credit – Qualifying employers whose operations have been fully or partially suspended by a government shutdown or whose gross receipts have dropped more than 50% compared to the previous year can receive a refundable payroll tax credit equal to 50% of up to $10,000 of compensation paid to an employee.
- Payroll Tax Deferral – Employers can delay the employer share of the Social Security payroll tax. Half of the tax is due by December 31, 2021, and the other half is due by December 31, 2022.
- Net Operating Losses – NOLs arising in 2018, 2019, and 2020 can now be carried back five years and offset 100% of taxable income. The excess business loss limitation rules are also eliminated for 2018, 2019, and 2020.
- Business Interest Deductions – A provision in the TCJA limited the business interest deduction for many taxpayers to 30% of the taxpayer’s adjusted taxable income for the year. The CARES Act increases this limit to 50% for 2019 and 2020.
- Required Minimum Distributions – RMDs from IRAs are not required to be taken for the 2020 calendar year.
- Retirement Plan Withdrawals – Certain affected taxpayers may withdraw up to $100,000 of distributions from qualified retirement plans without incurring the 10% penalty for early withdrawals. The income can be spread ratably over a 3-year period, or the taxpayer can avoid income by repaying the distribution within 3 years.
- Recovery Rebates – Eligible individuals will receive a rebate of $1,200 ($2,400 for joint filers) and $500 for each qualifying child. The payment is phased out for individuals with AGI between $75,000 – $99,000 ($150,000 – $198,000 for joint filers).
- Charitable Contributions – Up to $300 of charitable contributions will be allowed as an above-the-line deduction, allowing taxpayers who do not itemized to receive a deduction. Also, for 2020, cash contributions are not subjected to the normal 60% of AGI limitation and can offset 100% of a taxpayer’s income.
- Qualified Improvement Property – An error in the TCJA disqualified certain real property improvements from immediate expensing with bonus depreciation. The CARES Act corrects this.
Families First Coronavirus Response Act
- This Act requires employers with fewer than 500 employees to provide emergency paid sick leave and family medical leave for eligible employees who are unable to work or telework because of specific COVID-19 related issues, including caring for a child because of a child-care closure.
- To compensate employers for these costs, employers can claim a refundable credit against payroll taxes. Self-employed individuals also receive an equivalent credit.