Federal Legislative Update – CARES Act

Dan Reitz | IOGA Lobbyist

Federal: The U.S. Senate passed H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act or the ‘‘CARES Act,’’ the nearly $2 trillion negotiated legislation responding to the coronavirus pandemic and effects on the economy. The House is scheduled to pass the legislation on Friday.

Some Highlights: The legislation continues to provide direct payments to individuals and families, over $350 billion in financial support for small business and additional financial assistance including direct grants through the Small Business Administration, and at least $454 billion of a $500 billion fund for any U.S. businesses, states, or cities for loans and loan guarantees under a new program administered by the U.S. Treasury and lending flexibilities established by the Federal Reserve. The legislation added specific oversight to this fund under an Inspector General appointed specifically for the purpose of auditing the relief funding. Additional specific relief within the $500 billion authorization provides $29 billion to passenger and cargo airlines and $17 billion for industries necessary to national security. The legislation provides over $200 billion in financial aid to local governments, $100 billion in financial assistance to hospitals, and another nearly $340 billion in funding for federal agencies.

There are a number of tax provisions in the legislation that will be of interest:

Section 2302. Delay of payment of employer payroll taxes – This provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees for the rest of the year.

• Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

Section 2303. Modifications for net operating losses – This provision relaxes the limitations on a company’s use of losses.

• Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

Section 2304. Modification of limitation on losses for taxpayers other than corporations – This provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.

Section 2305. Modification of credit for prior year minimum tax liability of corporations – This provision allows companies to accelerate the timing to claim prior years AMT credit.

Section 2306. Modification of limitation on business interest – This provision temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020.

• As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.

Section 2301. Employee retention credit for employers subject to closure due to COVID-19 – This provision provides a refundable payroll tax credit for 50 percent of wages paid by certain employers to employees during the COVID-19 crisis. The credit is available to employers whose (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. The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. 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.

As of 3/26/2020