Press Room

26 Mar 2020

COVID-19 US relief package


The commentary below was prepared by Mary Duffy and Heather Harman of Andersen, United States.

The Senate has voted on and passed the Phase 3 COVID-19 Relief package, which includes a number of significant tax provisions that would affect individuals and businesses. The agreed-upon package reflects many of the tax proposals that were previously included in the Senate draft legislation as of March 22, including changes to net operating losses and Sec. 163(j) interest expense limitations. However, a few additional provisions have been added, including a Social Security tax credit for employers experiencing a business reduction during 2020 or that were subject to a government order to close due to COVID-19. While the bill’s prospects could change, at this time it is expected that this bill will be agreed to by the House.

Below is a summary of the major individual and business tax provisions in the Senate COVID-19 relief package based on the revised draft that passed the Senate on March 25 (items added, modified or removed since original introduction on March 19 are noted in bold).

Individual Provisions

  • Removed from bill: Individual return filings and payments due April 15 deferred until July 15 (Treasury has already deferred April 15 income tax returns and payments to July 15)
  • Removed from bill: Estimated tax payments due starting with date of enactment through October 15 deferred until October 15
  • Repeals the excess business loss limitation applicable to noncorporate taxpayers in Sec. 461(l) for 2018, 2019 and 2020 taxable years, as well as makes some technical corrections
  • For taxpayers that itemize, the 50% of AGI limit for charitable cash contribution deductions to a public charity (including federal, state and local governments) suspended for 2020 for cash contributions made during calendar year 2020
    • The suspension does not apply to contributions to a donor-advised fund or a Sec. 509(a)(3) supporting organization.

Corporate and Business Provisions

  • Removed from bill: Corporate estimated tax payments due starting with date of enactment through October 15 are deferred until October 15
  • The deposit of the employer’s share of Social Security taxes for the period beginning with the date of enactment through December 31, 2020 is deferred, with such taxes to be paid in over the next two years
    • Half required to be paid by December 31, 2021
    • Remainder to be paid by December 31, 2022
  • Added to the bill: Creates a refundable Social Security tax credit equal to 50% of qualified wages paid by an “eligible employer” from March 12 through December 31, 2020
    • Maximum credit of $5,000 per employee (based on maximum qualified wages of $10,000 per employee)
    • For eligible employers with more than 100 FTEs during 2019, qualified wages are limited to wages paid to employees that not working either due to a COVID-19 related government order or due to a significant decline in business
      • For all other eligible employers, all wages paid to employees during a qualifying quarter appear to qualify for the credit.
      • Tax-exempt organizations are eligible for the credit.
    • “Eligible employer” is any employer that either
      • Had its operations fully or partially suspended due to orders from a governmental authority due to COVID-19 or
      • Experienced a significant decline in gross receipts in 2020 compared to the prior year
        • Eligibility begins in the 2020 calendar quarter in which its gross receipts are less than 50% of the gross receipts for the same 2019 calendar quarter
        • Eligibility ends in the 2020 calendar quarter in which its gross receipts are more than 80% of the gross receipts for the same 2019 calendar quarter
    • All persons treated as a single employer under Sec. 52(a) or (b) or Sec. 414(m) or (o) will be treated as a single eligible employer for purposes of the credit
  • Net operating loss (NOL) rules modified to:
    • Temporarily remove the 80% taxable income limitation for NOL deductions taken in taxable years prior to 2021 (i.e., NOL deductions taken in 2018, 2019 and 2020)
    • Allows NOLs from 2018, 2019, or 2020 tax years to be carried back up to five taxable years
    • Makes technical corrections
  • Modifies corporate AMT credits made available as part of AMT repeal in Tax Cuts and Jobs Act (TCJA) to allow up to 100% of the credits to be refunded in 2018 tax year
  • Increases the business interest limitation in Sec. 163(j) to 50% of adjusted taxable income for taxable years beginning in 2019 and 2020
    • Also allows taxpayers to elect to use 2019 adjusted taxable income for purposes of computing the interest limitation for 2020
    • The above changes do not apply to partnerships for 2019, but a special rule allows 50% of excess 2019 interest limitation to be treated as paid or accrued by the partner in 2020
  • Increases the limitation on charitable contribution deductions for C corporations to 25%, including increasing the limitation with respect to food inventory contributions for C corporations and other taxpayers, from 15% to 25% for 2020
  • Makes technical corrections to TCJA, including:
    • Allows qualified improvement property to be eligible for bonus depreciation for property placed in service after September 27, 2017
    • Removed from bill: Modifies Sec. 965 to allow companies that inadvertently overpaid their Sec. 965 installment taxes in prior years to obtain a refund of such toll charge overpayments
    • Removed from bill: Restores the limitation on downward attribution of stock ownership in applying constructive ownership rules and permits companies to amend 2017 and 2018 tax year returns
  • Added to bill: Provides an exception from the alcohol excise tax for the use of alcohol to make hand sanitizer
  • Provides a suspension of certain aviation excise taxes

Other Individual Provisions

  • Retirement withdrawal rules relaxed for coronavirus-related withdrawals under $100,000
    • 10% early withdrawal penalty waived
    • Income attributable to distribution subject to tax over three years
    • Increase in loans not treated as distributions to $100,000 and delay of repayment
  • Added to bill: Temporary waiver of required minimum distribution rules for certain retirement plans and accounts
  • Provides a partial above-the-line charitable deduction for 2020 capped at $300 (only for those taking standard deduction)
  • Added to bill: Employer payments of student loans, either by payment to the employee or to the lender, are excluded from employee income if made before January 1, 2021 (subject to the present law limit of $5,250 in Sec. 127)

For more information, please see the revised March 25 draft of the Senate bill and the summary released by the Senate Finance Committee.

 


Julian Nelberg

Julian is Head of the Private Client group at Andersen Tax in the United Kingdom. His clients include international high net worth individuals, senior executives, trusts and companies.

Email: Julian Nelberg