UPDATED: JULY 20, 2020
To provide relief for US taxpayers, assist employees affected by COVID-19 and bolster US businesses, the US government has released a range of new tax measures and regulations. The environment is changing fast, so we’ll continue to monitor the situation and update you regularly. As of now, here are some of the new requirements you should be aware of.
US tax stimulus measures
US Congress passed stimulus, as of Friday, March 27. The President has also signed this into law. For details, take a look at this article.
Under these new measures, the IRS will:
- Allow net operating losses (NOLs) arising in 2018, 2019 and 2020 to be carried back five years and suspend the 80% taxable income limit until 2021. See our article here.
- Increase the taxable income threshold for the Section 163(j) limit on the interest deduction from 30% to 50% for tax years beginning in 2019 and 2020, and allow taxpayers to use 2019 taxable income to calculate the 2020 limit. See our article here
- Allow corporations to claim refunds for all remaining alternative minimum tax (AMT) credits in 2018 and 2019
- Correct an error in the Tax Cuts and Jobs Act (TCJA) that prevented qualified improvement property (QIP) from qualifying for 100% bonus depreciation (this will likely translate into a large benefit for retailers and restaurants) See our article here
- Suspend payment requirements for the 6.2% employer portion of Social Security taxes from the date of enactment through the end of 2020, with half the balance due by the end of 2021 and the other half due by the end of 2022.
- Create a new refundable employee retention credit of up to $5,000 for paying wages while business operations are suspended, or if gross receipts for a business drop by 50%
- Increase the taxable income limit on corporate charitable deductions from 10% to 25% and contributions of food inventory from 15% to 25%
- Suspend the limit on excess business loss deductions under Section 461(l) in 2018, 2019 and 2020 so that it takes effect for the first time in 2021
- Suspend 2020 funding obligations for single-employer defined benefit pension plans until January 1, 2021 (with interest due) and allow pensions to use the prior year’s status for certain benefit restrictions
New Small Business Association (SBA) loan program
The Coronavirus Aid, Relief, and Economic Security (CARES) Act also expands the eligibility criteria for borrowers to qualify for loans through the Small Business Administration (SBA) in the United States. The Paycheck Protection Program provides approximately $349 billion in federally guaranteed loans to certain US small businesses that meet the requirements of the program. UPDATE: The President signed a bill Friday, April 24, which authorized an additional $310 billion in funds to the program to be available April 27, 2020. Additional information has been added to the Treasury Department guidance (link below).
What is the Paycheck Protection Program?
The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. If all employees are kept on payroll for eight weeks, SBA will forgive the portion of the loans used for payroll, rent, mortgage interest and utilities. Up to 100% of the loan may be forgivable on a tax-free basis. To the extent employees aren’t retained, the amount forgivable on a tax-free basis should decrease. Note that the deadline to apply has been extended to August 8, 2020.
Who is eligible?
Very broadly, businesses with 500 or fewer employees may apply. Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries. Note that the 500 or fewer requirement generally considers chains of corporations with 50% common ownership as a single employer.
How much is available?
The Paycheck Protection Program can provide loans up to the lesser of $10 million and an amount representing the product of multiplying by 2.5 the average total monthly payments for payroll costs and certain other costs of the business during the one-year period ending before the loan is made. The portion of the loan used for permitted purposes should be eligible for tax-free forgiveness. The loan carries a 4% interest rate for amounts not used for permitted purposes.
How do I apply?
Unlike the other tax measures in the CARES Act, this program is administered by the SBA and their authorized banks. Therefore, you should contact your US banker to discuss eligibility. In our experience so far, we are hearing that the banks are aware and awaiting additional guidance. The US Treasury Department has issued additional guidance here.
This information reflects our understanding at April 27, 2020 and is subject to change without notice.
New paid leave requirements
To support employees affected by COVID-19, some US employers must now comply with two new regulations: the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA). Signed into law on March 18, these Acts came into effect on April 1 and are funded by payroll tax credits discussed in more detail below.
The EPSLA imposes new sick leave requirements on both government agencies and any entity or individual engaged in commerce that employs fewer than 500 employees. The new sick leave requirements generally apply to both part-time and full-time employees.
Covered employers must provide the new paid sick leave benefits for employees who are unable to work or telework if the employee is:
- Subject to a federal, state or local quarantine or isolation order
- Self-quarantining under the advice of a healthcare provider due to COVID-19 concerns
- Diagnosed with COVID-19 symptoms
- Assisting a family member quarantined under an order or the advice of a healthcare provider
- Caring for a child if the school is closed or the childcare provider is closed or unavailable due to COVID-19
The employer must provide 80 hours of this sick leave for all full-time employees. Part-time employees must receive the equivalent to their average working hours over a two-week period. The leave must be at full pay, capped at $511 per day and $5,110 in total, unless the employee is caring for a child or family member, in which case the minimum is two-thirds pay capped at $200 per day and $2,000 in aggregate. The Department of Labor is charged with writing a model notice on the new benefits that all affected employers must post.
The EFMLEA similarly applies to government agencies and any entity or individual with fewer than 500 employees.
Payroll tax credits
To help cover the cost of these new benefits, the US government will be providing an estimated $105 billion in tax credits. Employers are entitled to credits against employer payroll taxes for 100% of both the qualified sick leave benefits and qualified family leave benefits required to be paid under the bill. The credit caps mirror the caps in benefits:
- $511 per individual per day for sick pay, reduced to $200 per day for leave to care for a child or family member
- $200 per individual per day and $10,000 total for family leave
The credit also includes any employer costs incurred to provide health insurance to the employee during the period of leave, and this portion of the credit is not capped.
Both credits are fully refundable.
For more information, take a look at this article. Additional guidance from the US Department of Labor can be found here:
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