Coronavirus Stimulus Package Tax Breaks
Coronavirus Stimulus Package Tax Breaks
So much has occurred in the last month that it’s easy to forget that April 15th is no longer THE filing deadline. With the multitude of bills related to the Coronavirus, three and counting, and with the Paycheck Protection application process in full swing, it’s a good time to change gears and review other tax items that can provide assistance to the small businessperson.
Stimulus Check: How Will I Know?
The IRS will mail a letter to you within 15 days of the payment that will include the method (direct deposit or mail), amount of payment, and a phone number to call if you haven’t received your stimulus money.
What About IRA Contributions?
2019 IRA contributions normally due by April 15th are deferred to July 15th, to coincide with the new filing date.
Penalty-Free Access to Retirement Funds
To provide access to cash and lessen the financial impact to those who are impacted by COVID-19, the CARES Act allows individuals to access funds from their retirement plan without an immediate tax burden. Specifically:
? Increases the maximum amount a person can borrow from their retirement plan to $100,000 (from $50,000) with payback deferred for a year, then resumes the normal five-year amortization period.
? Waives the harsh 10% penalty on early 401(k) and IRA withdrawals that are made on account of COVID-19 hardships. Withdrawals repaid within three years are not taxed. Unpaid withdrawals are taxed evenly over a three-year period. Withdrawal limit is $100,000.
? Postpones retirees (over 70 1/2) from having to take the 2020 annual required minimum distribution from IRA or 401(k). The intent is to preserve capital in a time of stock market duress.
Who Is Eligible?
The availability of the distribution and increased loan rules are broad and range from COVID-19 diagnosis (personally or family member) to adverse financial consequences due to quarantine, reduced work, furlough, laid off, loss of childcare facility, and financial.
Deferral of Employer Payroll Tax Payments
The employer portion of Social Security payroll tax payments (i.e. match) can be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. The employee’s withheld payroll tax must still be paid timely. Self-employed can defer 50% of their self-employment tax. We will provide more specifics as to how to use this provision with your payroll tax returns as soon as the guidance is finalized.
Refundable Payroll Tax Credit for Employers
Small businesses who suffer significant slowdown or stoppage due to the economic fallout from COVID-19 are eligible for a 50 percent refundable payroll tax credit on wages paid to furloughed employees who continue to be paid during the COVID-19 crisis. The maximum credit is $10,000 per employee and appears to extend through the end of year.
The credit is available to employers whose businesses were disrupted due to virus-related shutdowns or experiencing a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. We will update this process as it becomes available.
Reinstated Net Operating Loss Carrybacks
Business can carryback net operating losses (NOLs) to apply against net business profits from the past five years in order to generate refunds. Losses incurred in years 2018, 2019, or 2020 can make use of this reinstated rule, which was discontinued as part of the tax reform bill.
Reinstated Expensing of Real Property Improvements
100% bonus depreciation has been restored on restaurant, retail, and leasehold improvements and is retroactive to 2018. This key expensing rule was not part of tax reform and expired at the end of 2017. This creates a refund opportunity for those who incurred these expenditures in 2018.
Oldie But Goodie: Employer-Paid Student Loans
Remember this one? Certain employer payments of employee student loans are excluded from employee taxable income, up to $5,250 maximum.
