Draft Senate COVID-19 Bill Proposes Further Relief for Individual Taxpayers & Businesses
On March 19, 2020, U.S. Senate Republicans released draft legislation—the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—to provide emergency assistance and health care response for individuals, families and businesses affected by the novel coronavirus disease 2019 (COVID-19) outbreak. This is expected to be the third legislation package enacted in response to the COVID-19 pandemic after President Trump signed the Families First Coronavirus Response Act into law on March 18, 2020.
The CARES Act proposes to extend the April 15, 2020, taxpayer filing due date to July 15, 2020. However, U.S. Department of the Treasury Secretary Steven Mnuchin and the IRS already announced this filing extension on March 19, 2020, following the publication of Notice 2020-17, which initially only extended the tax payment deadline to July 15, 2020. As a result, taxpayers now have an additional 90 days to file and make payments without interest or penalties. Furthermore, Notice 2020-18, released on March 20, 2020, removed the payment caps ($1 million for individuals and $10 million for corporations) originally in place under Notice 2020-17.
Below is a summary of the other proposed tax-related highlights of the CARES Act (subject to change as this bill moves through the legislative process).
The proposed legislation currently includes the following provisions for individual taxpayers:
- Recovery checks of up to $1,200 would be sent to taxpayers. Married couples filing jointly are eligible up to $2,400, with an additional $500 for every child. Based on a taxpayer's 2018 adjusted gross income, this benefit would begin to phase out at $75,000 for single taxpayers and $150,000 for joint filers, and then completely phase out for single taxpayers with income exceeding $99,000 and joint filers with income exceeding $198,000.
- There would be a delay of estimated tax payments due from date of enactment until October 15, 2020. Essentially, this means individual taxpayers would be able to defer their first, second and third quarter estimates (normally due at April 15, June 15 and September 15, respectively) until October 15, 2020.
- Consistent with previous disaster-related relief, the CARES Act waives the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for COVID-19 related purposes.
- For taxable years beginning in 2020, individuals who elect not to itemize can receive a deduction for qualified cash charitable contributions, up to $300.
- Individual taxpayers who elect to itemize on their 2020 tax returns would not be subject to the 60 percent adjusted gross income (AGI) limitation on cash charitable contributions. Instead, those contributions would be limited to the taxpayer’s total AGI.
The proposed legislation currently includes the following provisions for businesses:
- Corporate taxpayers would have the option to postpone estimated tax payments, due after the date of enactment of the CARES Act, to October 15, 2020.
- Employers and self-employed individuals would be able to defer payment of the employer share of Social Security tax. Half the deferred amount would be due by December 31, 2021, and the other half due by December 31, 2022.
- The CARES Act would increase the 10 percent of taxable income limitation for charitable contributions to 25 percent for taxable years ending after December 31, 2019.
- The current net operating loss (NOL) rules, put in place by the Tax Cuts and Jobs Act (TCJA), would be temporarily revised to allow losses arising in tax years 2018, 2019 or 2020 to be carried back five years. In addition, the provision limiting NOLs to only 80 percent of a taxpayer’s taxable income would be suspended for taxable years beginning before January 1, 2021, allowing companies to fully offset taxable income by such carrybacks or carryforwards.
- The CARES Act also would provide a technical correction to the TCJA to retroactively align the effective date of the NOL limitation and NOL carryback/carryforward provisions.
- For noncorporate taxpayers, the limitation on excess business losses imposed by the TCJA would be retroactively postponed and applied only to taxable years beginning after December 31, 2020.
- Corporations would be able to accelerate the recovery of refundable AMT credits, originally intended to be made available over several years.
- The TCJA created a new limitation on business interest expense deductions for tax years beginning after December 31, 2017. The CARES Act would temporarily modify the 30 percent limitation—as originally provided in the TCJA—to 50 percent. This provision would affect taxable years beginning in 2019 or 2020 and allow businesses to increase liquidity with a reduced cost of capital. In addition, businesses may elect to use their 2019 income to calculate the adjusted taxable income to which the 50 percent would apply.
- The CARES Act includes a highly anticipated technical correction to the TCJA that would allow taxpayers to apply the accelerated bonus depreciation rules to qualified improvement property.
Members of Congress have indicated they intend to move quickly to pass the next stimulus bill related to the COVID-19 outbreak. However, any proposed legislation would need to pass in both the House of Representatives and the Senate prior to becoming law; as such, all of the above provisions are subject to change. We will continue to monitor tax-related legislation and we’ll keep you up to date with relevant news, changing guidelines and new regulations in the BKD COVID-19 Resource Center.
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