Tax Relief in the CARES Act – Part 1

By now, many are aware of numerous programs offering loans and grants to small businesses and independent contractors in the CARES Act (the “Coronavirus Aid, Relief, and Economic Security Act”). There is also substantial tax relief available to businesses and individuals in the CARES Act. Over the next few days our firm will be posting on some of the most widely applicable tax relief available to businesses and individuals.

The most popular program of course is the stimulus checks going out to individuals. These checks will not be reduced or offset for any collection of back taxes owed. The IRS has updated its website with information on how to ensure that you receive your stimulus as soon as possible even if you have not filed taxes in the past two years. Check out https://www.irs.gov/coronavirus/economic-impact-payments for more information.

Distributions from Retirement Plans

The CARES Act allows individuals to make “coronavirus-related” distributions from retirement plans up to $100,000. These distributions will not be subject to the 10% tax on early distributions. A coronavirus-related distribution is 1) made on or after January 1, 2020 and before December 31, 2020, and 2)Made to an individual who (a) is themselves diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention or (b) has a spouse or dependent diagnosed with the virus or disease by test and experiences adverse financial consequences resulting from being quarantine, furloughed, laid off or having work hours reduced, unable to work due to lack of child care, closing or reduced hours of business owned or operated by the individual all do to the virus or disease.

Tax Credit for Employers Providing Paid Sick Leave

The Act established a refundable tax credit for employer of up to 100% of qualified paid sick leave wages required to be paid under the Emergency Paid Sick Leave Act. The tax credit is taken against taxes imposed under the Internal Revenue Code Section 3111(a) which is an employer’s portion of Social Security taxes. There are numerous limitations and administrative hoops to jump through to ensure that your paid sick leave qualifies for the credit. If you have paid employees sick leave due to a local quarantine or isolation order related to the novel coronavirus, you should consult with your tax advisor to ensure that your business can take advantage of this tax credit.

Tax Credit for Self-Employed Individuals Requiring Sick Leave

The Act also creates a similar refundable tax credit for self-employed individuals who meet all of the same requirements as employees receiving sick leave except for the fact that they are not employees. Similar to the above tax credit to employers, self-employed persons whose eligible tax credit for “sick leave” exceeds her or his tax liability will receive the remaining credit as a tax refund. If you have had to stop working due to isolation or quarantine orders and would like to discuss how to take advantage of this tax credit, do not hesitate to contact our firm and one of our tax attorneys can guide you through the process to ensure that your qualify and to ensure that you take advantage of the maximum benefit under the law.

– J. Drew Zimmer, Esq., LL.M. Tax