March 19,2020
Senators Recommend Tax Policies for Phase 3 Coronavirus Response
Recovery Checks of Up to
$1,200 for Most Taxpayers
Tax Filing Deadline
Extended to July 15
Individual, Business Tax
Deferral & Charitable Giving Incentives
Other Financial
Flexibility Tools for Individuals, Businesses
Washington – Senate Finance Committee Chairman Chuck Grassley
(R-Iowa), along with Senate Majority Whip John Thune (R-S.D.) and Sens. Tim
Scott (R-S.C.), Rob Portman (R-Ohio) and Mitt Romney
(R-Utah), today released tax policy recommendations for the “Phase 3”
congressional response to the economic impact of the coronavirus.
“Preventing
the spread of the coronavirus will take a financial toll on individuals,
families and businesses,” Grassley said. “These recommendations would blunt
the impact for most Americans and limit the damage to the U.S. economy. We can
contain this deadly virus without destroying livelihoods or the nation’s
economy. These recommendations take bold steps to curb the economic fallout as
we work as a country to contain this pandemic. These recommendations won’t be
the end of the congressional response to the coronavirus.”
“The
American people are focused on doing whatever they can to protect themselves
and their families throughout this outbreak,” Thune said. “They also
want to see the federal government demonstrate that it can take swift and bold
action to help blunt the effects the coronavirus is having on workers and our
economy. Every day in this fight is critical, which is why I support this
effort that would provide additional relief to American families and small
businesses upended by this collective and unseen enemy. While this won’t solve
all of the problems our nation is facing overnight, cash payments to middle-
and low-income families will provide direct support as quickly as possible. The
time to act is now.”
A
section-by-section summary of the proposals can be found HERE
and below. Legislative text can be found HERE.
DIVISION
B – RELIEF FOR INDIVIDUALS, FAMILIES, AND BUSINESSES
Title
I – Recovery Checks & Other Individual Provisions
Section
2101. 2020 recovery rebates for individuals
Recovery
checks of up to $1,200 will be put into the hands of most taxpayers, providing
cash immediately to individuals and families. Married couples who file a joint
return are eligible for up to $2,400. Those amounts increase by $500 for every
child. These checks are reduced for higher income taxpayers and begin phasing
out after a single taxpayer has $75,000 in adjusted gross income and $150,000
for joint filers. The IRS will base these amounts on the taxpayer’s 2018 tax
return. The rebate amount is reduced by $5 for each $100 a taxpayer’s income
exceeds the phase-out threshold. The amount is completely phased-out for single
taxpayers with incomes exceeding $99,000 and $198,000 for joint filers. The IRS
will base these amounts on the taxpayer’s 2018 tax return.
Taxpayers
with little or no income tax liability, but at least $2,500 of qualifying
income, would be eligible for a minimum rebate check of $600 ($1,200 married).
Qualifying income includes earned income, as well as Social Security retirement
benefits and certain compensation and pension benefits paid to veterans. This
ensures relief gets to low-income seniors and disabled veterans.
Section
2102. Delay of certain deadlines
The
provision extends the April 15th filing date to July 15th, giving individuals
more time to file their tax returns given the limitations caused by the
COVID-19 emergency. The filing date would be aligned with the extended payment
filing date already announced by the Internal Revenue Service.
The
provision also allows all individuals to postpone estimated tax payments due
from the date of enactment until October 15, 2020. There is no cap on the
amount of tax payments postponed, and any individual required to make estimated
tax payments can take advantage of the postponement. This delay should increase
the available cash flow for individuals experiencing cash shortfalls as a
result of the COVID-19 emergency.
Section
2103. Special rules for use of retirement funds
Consistent
with previous disaster-related relief, this provision waives the 10-percent
early withdrawal penalty for distributions up to $100,000 from qualified
retirement accounts for coronavirus-related purposes. In addition, income
attributable to such distributions would be subject to tax over three years,
and the taxpayer may recontribute the funds to an eligible retirement plan
within three years without regard to that year’s cap on contributions. Further,
the provision provides flexibility for loans from certain retirement plans for
coronavirus-related relief.
A
coronavirus-related distribution is a distribution made to an individual: (1)
who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with
COVID-19, or (3) who experiences adverse financial consequences as a result of
being quarantined, furloughed, laid off, having work hours reduced, being
unable to work due to lack of child care due to COVID-19, closing or reducing
hours of a business owned or operated by the individual due to COVID-19, or
other factors as determined by the Treasury Secretary.
Section
2104. Allowance of partial above the line deduction for charitable
contributions.
The
provision encourages Americans to contribute to churches and charitable organizations
in 2020 by permitting them to deduct up to $300 of cash contributions, whether
they itemize their deductions or not.
Section
2105. Modification of limitations on charitable contributions during 2020
The
provision increases the limitations on deductions for charitable contributions
by individuals who itemize, as well as corporations. For individuals, the
50-percent of adjusted gross income limitation is suspended for 2020. For
corporations, the 10-percent limitation is increased to 25 percent of taxable
income. This provision also increases the limitation on deductions for
contributions of food inventory from 15 percent to 25 percent.
Title
II – Business Provisions
Section
2201. Delay of estimated tax payments for corporations
The
provision allows corporations to postpone estimated tax payments due after the
date of enactment until October 15, 2020. There is no cap on the amount of tax
payments postponed. This delay will provide critical cash flow to help
businesses maintain operations and continue paying employees during the
COVID-19 emergency.
Section
2202. Delay of payment of employer payroll taxes
The
provision allows employers and self-employed individuals to defer payment of
the employer share of the Social Security tax they otherwise are responsible
for paying to the federal government with respect to their employees. All
employers are responsible for paying a 6.2-percent Social Security tax on
employee wages. The provision requires that the deferred employment tax be paid
over the following two years, with half of the amount required to be paid by
December 31, 2021 and the other half by December 31, 2022. The Social Security
Trust Funds will be held harmless under this provision.
Section
2203. Modifications for net operating losses
The provision relaxes the limitations on a
company’s use of losses from prior years. NOLs are currently subject to a
taxable income limitation, and they cannot be carried back to reduce income in
a prior tax year. This provision provides that a loss from 2018, 2019, or 2020
can be carried back five years. The provision also temporarily removes the
taxable income limitation to allow an NOL to fully offset income. These changes
will allow companies to utilize losses and amend prior years’ returns, which
will provide critical cash flow and liquidity during the COVID-19 emergency.
Section 2204.
Modification of limitation on losses for taxpayers other than corporations
The provision modifies
the loss limitation applicable to pass-through businesses and sole proprietors,
so they can benefit from the NOL carryback rules described above and access
critical cash flow to maintain operations and payroll for their employees.
Section
2205. Modification of credit for prior year minimum tax liability of corporations
The corporate AMT was repealed as part of the Tax
Cuts and Jobs Act, but corporate AMT credits were made available as refundable
credits over several years, ending in 2021. The provision accelerates the
ability for companies to recover those AMT credits, permitting companies to
claim a refund now and obtain additional cash flow during the COVID-19
emergency.
Section
2206. Modification of limitation on business interest
The
provision temporarily increases the amount of interest expense businesses are
allowed to deduct on their tax returns, by increasing the 30-percent limitation
to 50 percent of the taxable income for 2019 and 2020. As businesses look to
weather the storm of the current crisis, this provision will allow them to
increase liquidity with a reduced cost of capital, so that they are able to
continue operations and keep employees on payroll.
Section
2207. Technical amendment regarding qualified improvement property
The
provision enables businesses, especially in the hospitality industry, to
immediately write off costs associated with improving facilities instead of
having to depreciate those improvements over the 39-year life of the building.
The provision, which corrects an error in the Tax Cuts and Jobs Act, not only
increases companies’ access to cash flow by allowing them to amend a prior year
return, but also incentivizes them to continue to invest in improvements as the
country recovers from the COVID-19 emergency.
Section
2208. Installments not to prevent credit or refund of overpayments or increase
estimated taxes
Section
965, the one-time repatriation toll charge, imposed a tax on the untaxed
foreign earnings of U.S. companies in 2017. Companies had the option to pay the
tax up front, or in installments over eight years. Some companies overpaid
their 2017 taxes as a result of Section 965, but were unable to claim a refund
of those taxes due to an interaction with the rules for electing installment
payments. This provision, which corrects an error in the Tax Cuts and Jobs Act,
allows companies to recover the overpayment of taxes paid on the toll charge to
help with liquidity during the current crisis.
Section
2209. Restoration of limitation on downward attribution of stock ownership in
applying constructive ownership rules
This
technical correction addresses the tax treatment of certain foreign
subsidiaries resulting from changes made by the Tax Cuts and Jobs Act, which
changed the ownership requirements for foreign entities that are subject to
U.S. tax. The goal in changing these ownership rules was to target certain
abusive transactions. However, the changes had the unintended consequence of
subjecting some foreign entities to excessive tax and reporting requirements.
The provision clarifies that certain foreign subsidiaries should not be subject
to those requirements, which will permit companies to amend their 2018 tax
return to free up critical cash for operations and payroll and significantly
reduce their tax compliance burdens this year.
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