2020 Recovery Rebates for Individuals
For eligible individuals, the bill provides a rebate equal to the sum of $1,200 ($2,400 married filing joint), plus an additional $500 for each qualifying child. The term “eligible” means any U.S. resident individual with adjusted gross income up to $75,000 ($150,000 married filing joint, $112,500 head of household) with a valid social security number. This includes those with no income, or whose income comes solely from non-taxable means-tested benefit programs (e.g. SSI benefits). If married filing joint, the eligible individual’s spouse must also have a valid social security number, as well as any qualifying child claimed (or an adoption tax identification number, if applicable); there is an exception for military spouses. Nonresident individuals, estates, trusts, and individuals who are a dependent of another taxpayer are all excluded from eligibility.
In general, no action will be required for eligible individuals to receive their rebate check. The IRS will use information furnished on a taxpayer’s 2019 tax return if filed, including any account authorized for electronic payment on or after January 1, 2018, to make the disbursement. If no 2019 return has been filed, the IRS will look to the eligible individual’s 2018 tax return for such information, or to information provided on an eligible individual’s 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement if no 2018 tax return is on file. Eligible individuals will be notified no later than fifteen days after the disbursement is made, including the method of disbursement and a phone number to report any failure to receive such disbursement, via mail to the taxpayer’s last known address.
For eligible individuals, the rebate amount is reduced $5 for each $100 of income exceeding the above thresholds, with the rebate completely phased out at AGI levels exceeding $99,000 ($198,000 married filing joint, $146,500 head-of-household with one child).
The bill does not provide an effective date, but instead states the IRS should begin issuing the recovery rebates for eligible individuals as “rapidly as possible,” with no refunds or credits under this provision being made after December 31, 2020.
Special Rules for Use of Retirement Funds
The bill waives the 10% early-withdrawal penalty for up to $100,000 per individual of distributions from qualified retirement accounts for “coronavirus-related purposes.” During the three-year period beginning the day after the distribution date, the individual has the option to repay the loan and incur no tax; if not repaid, the income is ratably taxed over a three-year period beginning in the year of distribution. Distributions are “coronavirus-related” if made on or after January 1, 2020 and before December 31, 2020 to an individual:
- Who is diagnosed with SARS-CoV-2 or COVID-19 by a CDC-approved test, or
- Whose spouse or dependent (as defined by section 152) is diagnosed with such a virus by such a test, or
- Who experiences adverse financial conditions as a result of being quarantined, furloughed, laid-off, having work hours reduced, being unable to work due to lack of child care due to the virus, closing or reducing hours of a business due to the virus, or other factors determined by the Treasury.
Furthermore, for 180 days starting on the day of enactment of this bill, the limit on loans from qualified retirement accounts is increased from the lower of $50,000 or 50% of the vested account balance to $100,000 or 100% of the vested account balance, per qualified individual. The repayment due dates for these loans and any outstanding loans that would have otherwise been due between the enactment of this bill and December 31, 2020, are delayed one year.
Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts
For tax year 2020, the bill waives the required minimum distribution (RMD) rules for defined contributions plans, including 401(k), 403(a), 403(b), 457(b) plans and IRAs. This provision includes beneficiaries of inherited IRAs and individuals who turned 70 1/2 during 2019 and had to take their first RMD by April 1, 2020. Additionally, the waiver under this provision applies to the mandatory withholding requirements for rollover distributions.
Allowance of partial above the line deduction for charitable contributions
For tax year 2020 only, any individual who does not elect to itemize deductions is allowed an above the line deduction of up to $300 for cash contributions made to qualifying charitable organizations. Qualifying charitable organizations include churches, educational organizations, medical research organizations, private foundations, agricultural research organizations, and states (if the funds will be used for public good). Cash contributions to supporting organizations or to existing donor advised funds do not qualify for this deduction.
Modification of limitations on charitable contributions during 2020
The bill increases the amount that individuals electing to itemize deductions and corporations may deduct for qualifying charitable contributions made during calendar year 2020. Qualifying charitable contributions are those made to churches, educational organizations, medical research organizations, private foundations, agricultural research organizations, and states (if the funds will be used for public good). Under this provision, individuals may deduct qualifying charitable contributions up to 100% of adjusted gross income. Moreover, any qualifying charitable contributions made in excess of an individual’s 2020 AGI may be carried forward and deducted in the following five years, up to 100% of AGI until fully used.
A corporation’s limit for qualifying charitable contributions is also increased from 10% to 25% of taxable income. Furthermore, the amount that businesses can deduct for certain contributions of food inventory has been raised from 15% to 25%.
Exclusion for certain employer payments of student loans
For employers offering Section 127 Educational Assistance Programs to employees, the Act adds employer-paid payments for an employee’s qualified student loans as amounts eligible to be excluded from an employee’s income, up to $5,250. Other payments eligible to be excluded include payments for tuition, fees, books, supplies, and equipment. This provision is effective for payments made after the enactment of this bill and before January 1, 2021. Employers with affected employees may want to consider adding an Educational Assistance Program and implementing this provision for 2020 to provide additional help for employees.
Employee retention credit for employers subject to closure due to COVID-19
The bill creates a refundable payroll tax credit equal to 50% of qualified wages paid or accrued by eligible employers during the period from March 13, 2020 to December 31, 2020. The amount of this credit is limited to the first $10,000 of gross compensation paid to an employee, including health benefits (i.e. a maximum credit of $5,000 per employee). Eligible employers are those operating a trade or business in calendar year 2020 who:
- Have the operations of their trade or business fully or partially suspended due to orders from an appropriate governmental authority due to COVID-19, or
- Experience a decline in gross receipts by more than 50% in comparison to the same quarter in the prior year (for an employer that qualifies under this test, eligibility ceases when their gross receipts surpass 80% of the gross receipts for the same quarter in the prior year), or
- Operate as a tax-exempt organization and have their operations fully or partially suspended due to COVID-19
If an eligible employer has an average of greater than 100 full-time employees during 2019, then qualified wages are those amounts paid to an employee who is not providing services due to one of the circumstances described above. However, for eligible employers who have an average of less than 100 full-time employees during 2019, all wages are qualified for purposes of this provision. Moreover, qualified wages paid or incurred by an employer during an eligible period may not exceed the amount that would have been paid to that employee for working the same amount of time in the 30 days preceding that period.
Note: An employer is not eligible for this credit if they receive a Paycheck Protection Program (PPP) loan from the Small Business Administration. Furthermore, any wages taken into account for the purposes of this credit may not be taken into account for purpose of determining the Work Opportunity Tax Credit or the Employer Credit for Paid Family and Medical Leave.
Delay of payment of employer payroll taxes
The bill permits employers and self-employed individuals to defer the 6.2% employer-portion of social security tax to the extent the original due date was after the enactment of this bill. The deferred amounts are to be paid over a two-year period, with 50% being due on December 31, 2021, and the remainder being due on December 31, 2022.
Note: An employer is not eligible for deferral if the employer had indebtedness forgiven under the Paycheck Protection Program (PPP). Additionally, the bill contains special provisions regarding the liability of certified professional employer organizations (PEOs) and agents designated to perform acts otherwise required to be performed by an employer.
Modifications for net operating losses (NOLs)
Under the Tax Cuts and Jobs Act, a taxpayer was generally only permitted a net operating loss (NOL) deduction to the extent the deduction did not exceed 80% of the taxpayer’s taxable income before considering the NOL deduction. This resulted in NOLs which were carried into the current period and generated prior to the enactment of the TCJA being subject to the 80% limitation. Many considered this a technical error in the TCJA.
Under this bill, the previous 80% taxable income limitation is suspended for tax years beginning before January 1, 2021. For taxable years beginning after December 31, 2020, the taxpayer’s NOL deduction equals the sum of –
- the NOLs generated in taxable years beginning before January 1, 2018, which have been carried to such taxable year
- the lesser of –
- the NOLs generated in taxable years beginning after December 31, 2017 which have been carried to such taxable year, or
- 80% of the excess of the taxable income (prior to considering the NOL deduction, Section 199A Qualified Business Income deduction, or Section 250 Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income (GILTI) deduction) over the pre-2018 generated NOLs which are carried into such taxable year.
Essentially, for tax years 2021 and beyond, the rules under the TCJA have been somewhat reinstated with a correction being made for the potential technical error related to pre-2018 NOLs.
Furthermore, under the TCJA, taxpayers lost the ability to carry back NOLs generated in a given taxable year to offset taxable income in a prior year.
Under this bill, an NOL generated in a taxable year beginning after December 31, 2017 and before January 1, 2021 is permitted to be carried back to the preceding five taxable years. Taxpayers who choose to carry back an NOL to a year which has an amount included in taxable income from Section 965(a) transition tax will have further considerations.
Generally, taxpayers who were previously unable to fully utilize their pre-2018 generated NOLs due to the 80% income limitation may benefit from the new law. Additionally, taxpayers who generated NOLs during tax years 2018 or 2019, or will recognize an NOL for 2020, may now carry these losses back as far as 2013 to generate refunds on previously paid income tax.
Modification of limitation on losses for taxpayers other than corporations.
Under the current law, an individual or trust is limited in the amount of business losses that can be claimed as a reduction to taxable income in a given tax year. This limitation is known as the “Excess Business Loss Limitation”. The amount of any disallowed business loss is carried forward as a Net Operating Loss (NOL) to the following tax year. Generally, the limitation is $250,000 ($500,000 married filing joint). This limitation began with the 2018 tax year and was effective through the end of the 2025 tax year.
Under this bill, the applicability of the Excess Business Loss Limitation is delayed to tax years beginning after December 31, 2020 and before January 1, 2026. Additionally, the bill makes some clarifying changes regarding the treatment of capital gains, NOL deductions, and the Section 199A Qualified Business Income deduction.
Generally, taxpayers who were affected by the Excess Business Loss Limitation for the 2018 or 2019 tax year may benefit from the change in the law by filing an amended return or adjusting tax returns currently being prepared.
Modification of credit for prior year minimum tax liability of corporations.
Under the previous law, the Alternative Minimum Tax (AMT) regime for corporations had been eliminated. Any unused AMT credits upon repeal of the regime could be utilized over several years with the remaining amount being treated as a refundable credit in the 2021 tax year.
Under this bill, a corporation can accelerate utilizing any remaining AMT credits, allowing a 50% credit for 2018 and a 100% refundable credit for 2019. Alternatively, there is now an election available to allow a full refund of the remaining unutilized credit in tax year 2018.
Modifications of limitation on business interest.
Under the TCJA, business interest expense is generally limited to the sum of –
- 30% of a taxpayer’s adjusted taxable income (ATI)
- business interest income
- floor plan financing interest.
The limitation applies to all forms of businesses other than certain businesses with less than $25 million of gross receipts. The calculation of adjusted taxable income (ATI) involves several favorable adjustments and is analogous to EBITDA. In the case of a partnership, any excess limitation, as well as any disallowed interest expense amounts, are passed down to the partners and may be carried forward to be utilized in a future year.
Under this bill, for the 2019 and 2020 tax years, the 30% ATI limitation is increased to 50% for all taxpayers, except for the 2019 tax year of a partnership, which is still subject to the 30% limitation under the TCIA. However, for the 2019 tax year, if a partner in a partnership is allocated excess business interest expense, the partner may treat 50% of such amount as paid in the 2020 tax year and no longer be subject to the business interest expense limitation. The remaining 50% will be subject to the same limitation in the following year as other excess business interest.
Moreover, for the 2019 and 2020 tax years, a taxpayer may choose to elect out of the new 50% adjusted taxable income rules. Additionally, a taxpayer may elect to use their 2019 adjusted taxable income figure when determining their 2o2o business interest expense limitation. This will allow taxpayers to potentially deduct a greater portion of their 2020 interest expense for a year which will likely have lower- than- usual income.
The small business exception is still available in certain circumstances, which allows the taxpayer to be exempt from the limitation. Additionally, certain eligible taxpayers are still permitted to make the “real property trade or business” election allowing them to exempt from the limitation.
This provision will expire beginning in the 2021 tax year.
Technical amendments regarding qualified improvement property.
The bill provides a solution to a problem that affected many commercial landlords and tenants. Under the previous law, there was a technical error that excluded qualified improvement property (QIP) from qualifying for a 15-year depreciable MACRS life; instead, the property was to be depreciable over a 39-year MACRS life. Consequently, such property became ineligible for 100% bonus depreciation. Moreover, taxpayers who were required to use the ADS depreciation system were previously required to depreciate QIP over a 40-year period.
Under this bill, QIP has been added as property which qualifies for a 15-year MACRS depreciable life. When available, this change will make QIP eligible for bonus depreciation, based on the taxpayer’s other considerations. The change in the law is retroactive as though originally in place under the TCJA. Taxpayers who are required to use the ADS depreciation system are unable to take bonus depreciation; however, under this provision, these taxpayers can depreciate QIP over 20 years. There is no mention of any relief for taxpayers who have already made the “real property trade or business” election to manage the business interest limitation.
Generally, taxpayers who placed property into service during 2018 or 2019, which meets the definition of QIP, may benefit from the change in the law by filing an amended tax return or prospective change in accounting method.
Temporary exception from excise tax for alcohol used to produce hand sanitizer.
Included in the bill is a one-year exemption from excise tax for the removal of distilled spirits from any distilled spirits plant in approved containers for use in, or contained in, hand sanitizer products. These products must be distributed in a manner consistent with FDA guidance related to the outbreak of the SARS-CoV-2 or COVID-19 viruses. Moreover, any distilled spirits applicable under this provision are not subject to certain labeling or bulk sales requirements.
This provision applies to applicable distilled spirits removed after December 31, 2019, and before January 1, 2021.
Limitation on paid leave under FFCRA
The Act makes some clarifications regarding paid leave under the previous coronavirus relief legislation, the Families First Coronavirus Response Act (FFCRA). Generally, the Emergency Paid Sick Leave Act portion of FFCRA mandates that employers must provide paid sick leave, for a certain amount of time, to employees who are unable to work due to:
- A quarantine order or advised to self‐quarantine due to COVID‐19,
- Being advised by a health official to self-quarantine due to COVID-19 concerns,
- Experiencing symptoms of COVID-19 and seeking medical evaluation,
- Staying at home to care for an individual who is subject to a quarantine or has been advised by a health official to self-quarantine due to concerns related to COVID-19
- Caring for a son or daughter, if the school of such individual has been closed due to COVID-19 precautions,
- The employee experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
The CARES Act limits the amount employers are required to pay for sick leave to not more than $511 per day and $5,110 in total for each employee who is unable to work due to first three criteria above. Moreover, for employees unable to work due to the last three criteria, the bill limits the amount employers are required to pay to not more than $200 per day and $2,000 in total for each employee.
The Emergency Family and Medical Leave Expansion Act portion of FFCRA enables employees to take leave due to a qualifying need related to a public health emergency. A qualifying need for the purposes of this section is one in which the employee must take leave in order to care for their child whose school, place of care, or childcare provider has closed due to a COVID-19 related public health emergency. The child must be under 18 years of age. In general, the first 10 days of such a leave consist of unpaid leave. However, the act states that employers shall provide paid leave at a rate of not less than 2/3 of the employee’s regular rate of pay during the subsequent days following the initial 10-day period. Section 3601 of the CARES Act limits the amount that employers must pay for such a leave to the employee to $200 per day and $10,000 in the aggregate.
Paid leave for rehired employees
Under the Emergency and Medical Leave Expansion Act, the general requirement was that employees must be employed for at least 30 days in order to be eligible for paid leave. Under this bill, a previously laid off employee will meet the 30-day requirement, so long as the employee:
- Was laid off by their employer no earlier than March 1, 2020,
- Had worked for the employer for no less than 30 of the last 60 days prior to the employee’s layoff, and
- Was re-hired by the employer.
Advance refunding of credits
The Families First Coronavirus Response Act (FFCRA) allows for a credit against the Social Security and Medicare taxes (6.2%) imposed upon an employer. The amount of this credit is equal to the mandatory qualified sick leave wages that are paid by an employer for a maximum of 10 days and expanded family medical leave paid to qualifying employees. Qualifying wages are:
- $511 per day for an employee taking leave due to experiencing symptoms of COVID-19 or are subject to a COVID-19-related quarantine
- $200 per day for any employee taking leave to care for a child or quarantined individual
If the amount of the credit exceeds the amount of the social security taxes paid by an employer, then the excess credit is offset against other payroll tax deposits the employer must make; any residual excess is refunded.
This provision allows for employers to get an advance refund from the IRS for the calculated amounts of these credits. Furthermore, any penalty incurred by an employer, as a result of failing to make a deposit of their Social Security and Medicare taxes due to the anticipation of receiving one of these credits, will be waived.
Single-employer defined benefit plan funding rules
The Act grants relief for single-employer pension plan funding by delaying minimum required contributions due during 2020 until Jan. 1, 2021. Note however, that the amount of the payment to later be made would be increased by interest which accrued from the original due date until the new payment date. Plan sponsors may elect to treat the plan’s funding percentage (AFTAP or adjusted funding target attainment percentage) for the last plan year ending before Jan. 1, 2020 as the AFTAP percentage for plan years which include the 2020 calendar year when determining whether restrictions on certain amendments and lump sums (or certain other accelerated payment forms) under Internal Revenue Code Section 436 apply for such plan years.
Exemption for telehealth services.
The bill protects the status of high-deductible health plans (HDHPs) for use of health savings accounts (HSAs), even if the plan fails to have a deductible for telehealth or other “remote care” services. This provision is applicable for plan years beginning on or before December 31, 2021 and takes effect on the date of enactment of this bill.
Inclusion of certain over-the-counter medical products as qualified medical expenses.
For purposes of health savings accounts, health reimbursement arrangements, flexible spending accounts, and Archer medical savings accounts, the bill provides that amounts paid for menstrual care products will be treated as qualified medical expenses. According to the bill, the term “menstrual care product” means a “tampon, pad, liner, cup, sponge, or similar product used by individuals with respect to menstruation or other genital-tract secretions.”
This rule applies to amounts paid after December 31, 2019.
Suspension of certain aviation excise taxes.
The bill provides an “excise tax holiday,” suspending the imposition of federal excise taxes on any amount paid for transportation by air of persons and cargo, including amounts paid for the right to award free or reduced rate air transportation. The bill also suspends the imposition of excise taxes on amounts paid for kerosene used in commercial aviation, except the Leaking Underground Storage Tank (LUST) tax.
The excise tax holiday is effective upon enactment of this bill through December 31, 2020, and does not include amounts paid on or before the date of enactment.