Tax Benefits for Businesses
There are several tax benefits for businesses contained in the CARES Act. They include an employee retention credit, delayed payment of employer payroll taxes, changes to the loss provisions implemented in the Tax Cuts and Jobs Act, and changes to the limitation on the business interest expense deduction.
Employee Retention Tax Credit
The Act provides certain employers with a refundable tax credit against payroll tax (social security tax) equal to 50% of the first $10K in wages per employee (including health plan benefits). To qualify, employers must have been in business during 2020 and satisfy one of the following:
Have fully or partially suspended operations due to orders from a governmental entity limiting commerce, travel, or group meetings.
Experience a year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50%, until gross receipts exceed 80% year-over-year.
The employee retention credit is effective for wages paid after March 12, 2020 and before January 1, 2021.
Delayed Payment of Employer Payroll Taxes
The Act postpones the due date for depositing employer payroll taxes and 50% of self-employment taxes related to social security and attributable to wages paid during 2020. The deferred amounts are payable over the next two years with 50% due on December 31, 2021, and the remaining 50% due on December 31, 2022.
The IRS FAQ on delayed payments is located here.
Changes to Loss Provisions
Certain changes to the loss provisions included in the Tax Cuts and Jobs Act ("TCJA") are suspended so that companies can utilize more losses and claim refunds for more losses. Specifically:
The TCJA's 80% of taxable income limit on net operating loss ("NOL") carryovers for three years is suspended so that it does not apply to tax years beginning in 2018, 2019, and 2020.
NOL's arising in 2018, 2019, and 2020 can be carried back five years.
Limit on the use of a pass-through business' losses against non-business income for three years is suspended so that is does not apply to tax years beginning in 2018, 2019, and 2020.
Limitation on Business Interest Expense
The Act temporarily increases the limitation in interest deductions imposed by the TCJA, by increasing the 30% of adjusted taxable income threshold to 50% for tax years beginning in 2019 and 2020.