NJCPA Reminds Taxpayers of CARES Act Tax Savings for Businesses and Individuals
April 1, 2020
Employee Retention Credits and Delay on Payroll Taxes Given
The New Jersey Society of Certified Public Accountants (NJCPA) reminds taxpayers about several benefits available to businesses and individuals from the passage of the new Coronavirus Aid, Relief and Economic Security (CARES) Act, which was signed by President Trump on March 27. The $2 trillion stimulus package, which included more than $350 billion in relief aid to small businesses, was initiated to assist those economically impacted by the coronavirus pandemic. The stimulus package complements other Small Business Administration (SBA) disaster relief loans already available.
The following CARES Act tax-saving benefits can assist businesses:
- Employee retention credit: This applies to employers whose operations have closed or have been partially suspended due to orders from governmental authorities. The amount of the refundable tax credit is equal to the Social Security portion of payroll taxes that a business pays on the first $10,000 in wages (including health benefits) to an eligible employee between March 13, 2020, and Dec. 31, 2020. For example, if a business owner pays $5,000 in wages to an eligible employee during closure or partial closure, he or she would be entitled to a credit of $310 (6.2-percent Social Security tax one would pay as an employer on the $5,000 in wages).
- Delay of payment of employer payroll taxes: Businesses can defer the employer’s share of the Social Security tax (6.2 percent) that they would otherwise be responsible for paying to the IRS. The deferred employment tax would be due and payable over the following two years, half in 2021 and half in 2022.
- Election to carryback net operating losses (NOLs): If businesses have net operating losses in 2018, 2019 or 2020, they can now carryback net operating losses (NOLs) five years to receive a refund of previously paid income tax. Before the CARES Act, one had to carryforward the NOL and wait for a profitable year in order to utilize the NOL.
- Retroactive amendment to bonus depreciation: This allows a business to claim 100-percent bonus depreciation for “qualified improvement property.”
The following CARES Act tax-saving benefits can assist individuals:
- The 10-percent penalty is waived for eligible individuals under age 59 ½ who take a “coronavirus-related distribution” of up to $100,000 from their eligible retirement plan in 2020.
- Taxpayers do not need to take required minimum distributions (RMDs) from their retirement plan. If one chooses to withdraw money from a retirement account this year, it will be included as taxable income.
- Distributions from a retirement account of up to $100,000 can be reported as income over three years and/or repaid.
- Charitable donations up to $300 can be taken as an “above-the-line” deduction for taxpayers who take the standard deduction.
- Student loan payments paid by an employer up to $5,250 can be excluded from one’s taxable income for calendar year 2020.
- If a taxpayer receives a stimulus check, it will not be included in their taxable income.
“The relief package should help small business owners stay afloat amid these uncertain times, but they, as well as individuals, need to seek out what financial assistance is available in the correct manner and review everything that is available to them. There’s a lot to sift through,” said Gail Rosen, CPA, of Gail Rosen CPA PC of Martinsville, New Jersey, and a member of the NJCPA.
“Business owners and individuals should remember to contact their CPA for any tax assistance they need. Our members stay abreast of the latest initiatives to help businesses prosper amid the current economic challenges,” said Ralph Albert Thomas, CPA (DC), CGMA, CEO and executive director at the NJCPA.