Highlights of Tax Legislation to Help Small Businesses

The spread of coronavirus has resulted in job loss, reduction in income, and unforeseen financial challenges for many. The U.S. Congress has passed legislation signed by the President that helps small to medium-size businesses.

Highlights of tax provisions in the “phase 3” legislation that may be available to you are:

Tax measures for individuals

• “Recovery rebate” credits of up to $1,200 for eligible single filers and $2,400 for eligible joint filers for 2020 (with amounts increased by $500 per child). These payments would be subject to phase-outs beginning at adjusted gross income (AGI) of $75,000 / $150,000 for single filers / joint filers.
• A waiver of the early withdrawal penalty for certain coronavirus-related withdrawals from qualified retirement plans.
• Allowance of up to $300 of charitable deductions for non-itemizing taxpayers for tax years beginning in 2020 and a temporary relaxation of the limitations on certain charitable contributions for those taxpayers who itemize.
• A temporary waiver of the required minimum distribution rules for certain retirement plans and accounts.
• A temporary income tax exclusion for those individuals who receive student loan repayment benefits from their employers.

Tax measures for businesses

• A delay of payment of certain employer and self-employment payroll taxes for the period running from enactment March 27, 2020 through the end of 2020. This obligation to pay 2020 tax would be deferred in part until 2021 and in part until 2022.
• Changes to the rules governing net operating losses (NOLs), including a five-year carryback of certain 2018, 2019, and 2020 losses and, temporarily, the ability to fully offset income.
• Suspension of the limitation on loss rules for taxpayers other than corporations (for example, partnerships) for tax years beginning after 2017 and before 2021.
• A refundable employee retention payroll tax credit (generally equal to 50% of an employee’s wages up to $10,000) for qualifying employers that have had to fully or partially suspend operations or that have experienced a significant decline in gross receipts related to COVID-19. 
• Temporary acceleration of refundability of corporate alternative minimum tax (AMT) credits.
• Temporary relaxation of the section 163(j) limitation on business interest expense deductions to 50% of adjusted taxable income for tax years beginning in 2019 and 2020, and an election to use 2019 adjusted taxable income for tax years beginning in 2020.
• Modifications of single-employer plan funding rules and rules related to charitable employers whose primary exempt purpose is providing services with respect to mothers and children.
• A suspension of certain aviation excise taxes through the creation of an “excise tax holiday” through December 31, 2020.
• A temporary exception from excise tax for distilled spirits used to produce certain hand sanitizers through 2020.
• A temporary increase for the deduction for contributions of food inventory from 15% to 25% for contributions made during 2020.
• A temporary relaxation of the limitations on certain other charitable contributions by corporations.
• Modifications relating to advance refunding of credits with respect to the payroll credit for required paid sick leave enacted as part of “phase 2” COVID-19 response legislation.
• Various health-related provisions, including provisions relating to telehealth as well as inclusion of certain over-the-counter medical products as qualified medical expenses for purposes of health savings account rules.
• Rules treating certain loans made or guaranteed by the Treasury under the legislation as indebtedness for tax purposes.

Technical corrections to a handful of provisions in the 2017 tax law (“Tax Cuts and Jobs Act”), including the qualified improvement property fix, the NOL effective date fix, and fixes to the loss limitation rules for taxpayers other than corporations.

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