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Important 2020 Tax Legislation That May Have Been Forgotten Important 2020 Tax Legislation That May Have Been Forgotten

Important 2020 Tax Legislation That May Have Been Forgotten

Over the past seven months, there has been significant legislation passed and guidance issued as a result of COVID-19, and much of this has had tax implications. While some of these tax consequences have been discussed widely, others have not been highlighted as much—though they provide potential tax savings to taxpayers, particularly businesses. The following are a sampling of the more significant tax changes that have been passed, as well as some of the new tax incentives and credits that are set to expire:
 
  • Carryback of Net Operating Losses: Companies with net operating losses (“NOLs”) for 2018 through 2020 tax years are permitted to carry back those losses to each of the five taxable years preceding the taxable year of such loss, which could generate refunds for businesses in those previous years. Additionally, the new limitation from the 2017 tax reform that NOLs could only offset eighty percent (80%) of the company’s taxable income was removed for those years as well. For additional detail on the NOL changes, see www.icemiller.com/ice-on-fire-insights/publications/summary-of-modifications-for-net-operating-losses/.
     
  • Expenses Related to Paycheck Protection Program (“PPP”) Loans: The legislation for the PPP loans provides that the forgiveness of the loans (if and when that occurs) does not generate taxable income to the loan recipient, which is a deviation of the traditional tax result if a loan is forgiven. However, the IRS has issued guidance providing that the expenses paid with such loan proceeds are not deductible if the loan is forgiven (in order to prevent a double tax benefit). This creates complexities for taxpayers—particularly if the loan is forgiven in a different tax year as to when the applicable expenses were incurred. Some in Congress have indicated they want to pass legislation to override the IRS’s position so it remains to be seen how this will play out.
     
  • Tax Credits for COVID-19 Leave Payments to Employees: One of the initial laws passed as a result of the COVID-19 pandemic required certain employers to provide paid leave to employees in certain COVID-19-related circumstances. However, many of those employers were entitled to a tax credit against their social security tax obligations to defray the impact of such payments. These provisions are set to expire at the end of 2020, and therefore one important question becomes whether the paid leave obligations will be extended, and if so, will the tax credits similarly be extended. For additional detail on the tax credits for COVID-19 leave payments, see www.icemiller.com/ice-on-fire-insights/publications/update-the-families-first-coronavirus-response-ac/.
     
  • Payroll Tax Deferral: While much attention and confusion has arisen related to the employee payroll tax deferral for the last four months of 2020 (www.icemiller.com/ice-on-fire-insights/publications/payroll-tax-deferral-more-guidance,-same-uncertai/), the CARES Act allowed employers to defer their portion of social security taxes on wages paid in 2020 after the legislation was passed, to be repaid half in 2021 and half in 2022. Unlike the employee deferral that most believe have limited benefits (and potential exposure), the employer deferral could provide some temporary relief to businesses. For additional detail on the employer payroll tax deferral, see www.icemiller.com/ice-on-fire-insights/publications/summary-of-delay-of-payment-of-employer-payroll-ta/.
     
  • Employee Retention Credit: For employers who did not qualify or did not pursue the PPP loan (described above), an employee retention credit is available through the end of this year to certain businesses if they kept individuals employed despite the fact the business either: (i) was forced to shut down as a result of a government order related to COVID-19 or (ii) had more than a 50% decrease in revenue as compared to the same quarter in the previous year. Although this benefit did not gain as much attention as the PPP loan, this credit is valuable for those businesses who qualify. The next question is whether it will be extended beyond 2020. For more details on the employee retention credit, see www.icemiller.com/ice-on-fire-insights/publications/summary-of-employee-retention-credit-for-employers/.
Feel free to contact Matt Ehinger or any member of Ice Miller’s Tax Group to discuss the developments detailed above or any of the other tax related changes as a result of COVID-19.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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