Business Tax provisions

Summary of Keypoints

• Employee Retention payroll tax credit: Employers may claim a refundable payroll tax credit equal to 50% of qualified wages, up to $10,000 per employee, if business operations were disrupted by COVID-19 shutdowns or gross receipts declined by at least 50% compared to the same quarter in the prior year, with different wage eligibility rules based on employer size.
• Deferral of employer Social Security taxes: Employer-side Social Security payroll taxes may be deferred, with 50% due by December 31, 2021 and the remaining 50% due by December 31, 2022, while the Social Security Trust Fund is temporarily backfilled with general revenue.
• Net operating loss (NOL) relief: Businesses may carry back NOLs generated in 2018, 2019, or 2020 for five years, fully offset taxable income due to the suspension of the 80% limitation, with additional modifications affecting non-corporate taxpayers and technical corrections for prior tax years.
• Expanded deductions and depreciation changes: The net interest deduction limit is increased from 30% to 50% of EBITDA for 2019 and 2020, and technical corrections are made to allow proper depreciation treatment of qualified improvement property (QIP).
• Additional tax and lending provisions: The CARES Act suspends certain excise taxes, including those on alcohol used for hand sanitizer and aviation excise taxes, and authorizes $454 billion in emergency lending with restrictions on stock buybacks, employment levels, executive compensation, and oversight requirements.

• Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis. It would be available to employers whose businesses were disrupted due to virus-related shutdowns and firms experiencing a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit is available for employees retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees.
• Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period.
• Firms may take net operating losses (NOLs) earned in 2018, 2019, or 2020 and carry back those losses five years. The NOL limit of 80 percent of taxable income is also suspended, so firms may use NOLs they have to fully offset their taxable income. The bill also modifies loss limitations for non-corporate taxpayers, including rules governing excess farm losses, and makes a technical correction to the treatment of NOLs for the 2017 and 2018 tax years.
• Firms with tax credit carryforwards and previous alternative minimum tax (AMT) liability can claim larger refundable tax credits than they otherwise could. 
• The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA), has been expanded to 50 percent of EBITDA for 2019 and 2020. This will help businesses increase liquidity if they have debt or must take on more debt during the crisis.
• Technical corrections to the depreciation treatment of qualified improvement property (QIP).
• The excise tax applied on alcohol used to produce hand sanitizer is temporarily suspended for tax year 2020.
• Aviation excise taxes are suspended until January 1, 2021. We estimate this will reduce federal revenue by about $8 billion in 2020.
• $454 billion in emergency lending to businesses (including $350 billion for small businesses), states, and cities through the U.S. Treasury’s Exchange Stabilization Fund. Additionally, this includes $25 billion in lending for airlines, $4 billion in lending for air cargo firms, and $17 billion in lending for firms deemed critical to U.S. national security. Firms taking loans must not engage in stock buybacks for the duration of the loan plus one year and must retain at least 90 percent of its employment level as of March 24, 2020. Loans also come with terms limiting employee compensation and severance pay for firms taking loans. Emergency lending will be overseen by a Congressional Oversight Commission and a Special Inspector General.

For more information, please read: https://www.finance.senate.gov/imo/media/doc/Section-by-Section%20Coronavirus%20Tax%20Relief%20Measures.pdf