Senate Majority Leader Mitch McConnell (R-KY) introduced a new COVID-19 Relief Package on Thursday. The bill includes numerous tax changes to grant tax relief and provide cash flow and liquidity to businesses. It will also provide individual payments to low-income taxpayers, fee-free loans to small businesses, and loan guarantees for high-risk industries.
Senate Majority Leader Mitch McConnell (R-Ky.) on Thursday introduced a bill to relieve economic impacts of the coronavirus (COVID-19). The legislative package proposes to delay the 2019 tax filing deadline from April 15 to July 15 and to provide direct cash payments to Americans. This bill is Congress’s third effort to address the COVID-19 pandemic.
The 247-page Coronavirus Aid, Relief and Economic Security Act (the CARES Act) proposes numerous tax changes to grant tax relief and provide cash flow and liquidity to businesses. Key tax changes include the following:
It relaxes the limitations on net operating losses (NOLs) for corporations, pass-through businesses and sole proprietors that were put in place as part of the 2017 Tax Cuts and Jobs Act (TCJA), allowing losses from 2018, 2019 and 2020 to be carried back five years and temporarily removing the taxable income limitation to allow an NOL to fully offset income.
It restores the limitation on downward attribution of stock ownership in applying constructive ownership rules under Internal Revenue Code section 958(b)(4), which was repealed as part of the TCJA. As a result, certain businesses would be able to amend their 2018 tax return and increase their cash flows.
It increases the amount of interest expense businesses are allowed to deduct under Code Section 163(j), permitting businesses to deduct 50%, as opposed to 30%, of their taxable income.
It allows for corporations to postpone estimated tax payments until October 15, 2020 and for employers to defer paying their portion of Social Security taxes.
In addition to the tax relief provisions, the CARES Act includes specific economic relief for businesses, providing fee-free loans of up to $10 million to small businesses to cover their debt obligations and guaranteeing $208 billion in loans and loan guarantees for at-risk industries, including airlines and cargo carriers.
The CARES Act also includes relief measures for individuals. It authorizes the Internal Revenue Service to issue checks of at least $600 and as much as $1,200 per person ($2,400 for joint-filers). Payments would be phased in for low-income taxpayers and phased out for individuals with adjusted gross income over $75,000 ($150,000 for joint filers). It also provides for an additional $500 per child.
Additionally, the CARE Act postpones individuals’ estimated tax payments, waives early withdrawal penalties for COVID-19 related distributions from qualified retirement accounts, allows above-the-line deductions for up to $300 of charitable contributions, and increases the charitable contribution limitations for individuals that itemize.