Prospective Credit Union Business Members
For prospective business members, we have an easy process to begin the SBA CARES Act application. Please download the following form, fill it out, scan or take a picture of the completed form, and return it to firstname.lastname@example.org.
Current Wasatch Peaks Business Members
For current business members, please complete our streamlined process by filling out and submitting your online SBA CARES Act application which can be found in your Online Banking.
The Coronavirus Aid, Relief and Economic Security Act (CARES) was signed into law by the President on March 27, 2020. This comes after moving through various objections to passage in both the Senate and the House of Representatives, creating historical voting procedures to allow the legislation to move forward. CARES provides substantive assistance to taxpayers and businesses affected by the coronavirus.
Employee Retention Credit
CARES provides a refundable payroll tax credit equal to 50 percent of wages paid by employers during the coronavirus pandemic. The credit is provided for the first $10,000 of compensation (including health benefits) paid to an employee starting March 13, 2020 through December 31, 2020.
Generally, employers qualifying for this credit include those whose:
- operations were fully or partially suspended due to a coronavirus shut-down order
- gross receipts declined by more than 50 percent as compared to the same prior year quarter. And, it can apply to exempt organizations.
The credit is based upon qualified employee wages. Qualified wages for employers with more than 100 full-time employees are wages paid to employees when they are not providing services due to coronavirus related circumstances. Qualified wages for employees with 100 or fewer full-time employees include all employee wages, even if the employer is closed due to a shut-down order.
Employers can elect not to take advantage of this credit. Employers may also be limited in their ability to take advantage of this credit where the employee wages are used to compute a different credit, such as for hiring veterans, the small business R&D. Plus the new sick and required leave programs or if the employer accepts a covered loan under the Small Business Act.
Deferral of Employer’s Share of Payroll Taxes
Employers and self-employed individuals can defer payment of the employer’s share of the Social Security tax they are otherwise responsible for paying (generally a 6.2 percent tax on wages or earned income) for the 2020 tax year. The deferred employment tax can be paid over the two following tax years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
A large part of the act’s financial aid is administered through Small Business Administration (SBA) Loans. Many businesses and nonprofits with no more than 500 employees (subject to certain limitations) can qualify for these loans. The loans, which are issued by participating banks and other qualified lenders and guaranteed by the SBA, can equal the lesser of $10 million or 2.5 times an employer’s 2019 monthly annual payroll. All or a portion of the loan amounts can be forgiven by the government if the employer maintains both the number of employees as well as their salaries. There is a waiver of SBA fees for one year, but interest will be accrued.
Net Operating Losses
The Tax Cuts and Jobs Act (TCJA) amended code section 172 by placing several limitations on the use of net operating losses (NOLs) for the tax years from 2018 forward. First, NOLs could only be carried forward (previous law had allowed NOLs to be carried back two years). And second, NOLs could be used to offset no more than 80 percent of a taxpayer’s taxable income, with any remainder carried forward for use in a subsequent year.
CARES makes substantive changes to code section 172, but only for the tax years beginning in 2018 through 2020. Under this temporary provision, NOLs can be carried back five years, and NOLs are not subject to any taxable income limitations. Any taxpayers with already filed 2018 or 2019 tax returns reporting NOLs subject to the TCJA rules (either the taxable income limitation or prohibition against carrybacks). They also may consider amending tax returns to claim additional losses and possibly carry back any unused NOLs. Additionally, any NOLs arising with unfiled 2019 tax returns will benefit from these new temporary rules. Under both situations, NOLs can be carried back to former tax years and applied against income taxed at pre-TCJA rates, potentially resulting in a permanent benefit.
Business Interest Expense Limitations
Section 163(j), as amended by the TCJA, generally limits a taxpayer’s deductible business interest expense to the sum of a taxpayer’s business interest income and 30 percent of a taxpayer’s adjusted taxable income (“ATI”). A detailed discussion of ATI is beyond the scope of this insight but, generally, ATI equates to earnings before interest, taxes, depreciation, and amortization.
CARES temporarily increases the amount of deductible business interest expense limitation to 50 percent of a taxpayer’s ATI (plus business interest income) for tax years beginning in 2019 and 2020. For taxpayers other than partnerships, the increased ATI limitation is applicable to 2019 and 2020 tax years. Any 2019 tax returns filed by these taxpayers that have been filed reporting a section 163(j) business interest expense limitation may be amended to reflect the increased interest expense threshold. Partnerships remain subject to the 30 percent of ATI limitation for their 2019 tax returns but are provided with increased flexibility in utilizing excess business interest expense carryforward on their 2020 tax returns. Partnerships are then eligible to use the 50 percent of ATI limitation on their 2020 tax returns.
Excess Business Loss Limitation (Section 461(l))
Section 461(l) was enacted as part of the TCJA for tax years beginning after December 31, 2017, and limits the ability of non-corporate taxpayers to use business losses to offset their non-business income. Specifically, business losses that exceed business income can only be used to offset $250,000 ($500,000 for joint filers) of non-business income. Any losses in excess of the amount allowed are carried forward to subsequent years as a net operating loss.
CARES delays the effective date of the business loss limitation rules under Section 461(l) to tax years beginning after December 31, 2020. As a result, for tax years beginning in 2018 through 2020, business losses are fully deductible against business and non-business income. Taxpayers whose losses were limited on their 2018 or 2019 tax returns by this provision may have an opportunity to amend these returns to modify the treatment of those losses.
CARES also makes several technical corrections to the original statutory language that are retroactively effective. These corrections are intended to clarify several aspects of the legislation including the determination of business income and the treatment of disallowed losses that are carried forward. The modifications provide that wages earned as an employee do not constitute business income for purposes of Section 461(l). Additionally, capital losses are not treated as business losses for these purposes, but capital gains are treated as business income up to the lesser of the business capital gain income or total capital gain income. Losses disallowed under these rules are treated as net operating losses arising in the year of disallowance for purposes of applying the NOL rules under Section 172.
Qualified Improvement Property “Fix”
Qualified Improvement Property (QIP) generally includes interior, non-structural improvements to nonresidential buildings that are placed in service after the buildings were originally placed in service. QIP was intended to be classified as 15-year property under the TCJA which would have allowed the property to be eligible for bonus depreciation under Section 168(k). However, due to a drafting error, QIP was not assigned a recovery period of 15-years. As a result, QIP placed in service after December 31, 2017, was assigned a recovery period of 39-years and was not eligible for bonus depreciation.
CARES retroactively corrects the statutory drafting error and assigns a 15-year recovery period to QIP. As a result, taxpayers that placed in service QIP during 2018 or 2019 may correct the recovery period on the property and claim bonus depreciation if otherwise eligible. Taxpayers may make this correction through filing a Form 3115, Application for Change in Accounting Method, with their 2019 or 2020 tax return. Alternatively, they could amend their 2018 or 2019 return if the amendment is completed prior to the date they file their tax return for the following year. For example, a taxpayer may amend its 2018 tax return if they have not yet filed their 2019 return. If they have filed their 2019 return, they will need to file a Form 3115 with either an amended 2019 return or a timely filed 2020 return to recognize the additional depreciation expense.