Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 (Pub. L. No. 116-123) (Mar. 6, 2020), which provided supplemental emergency funding to several federal agencies to prevent, prepare for, and respond to the COVID-19 outbreak (see Legal Update, President Signs Legislation to Fund Coronavirus Response; Health Insurers to Waive Co-Pays).

Families First Coronavirus Response Act (Pub. L. No. 116-127) (Mar. 18, 2020), which, among other things, required group health plans and health insurers to provide coverage, without cost-sharing, for testing to detect or diagnose the 2019 Novel Coronavirus (which causes COVID-19) (see Legal Update, COVID-19 Legislation Includes Group Health Plan Coverage Requirements). The CARES Act amends certain provisions of the Families First Coronavirus Response Act.

Allowance of Net Operating Loss (NOL) Carryback. Under the CARES Act, taxpayers can carry back NOLs incurred in 2018, 2019, and 2020 to the five previous tax years and can use those losses to offset 100 percent of taxable income. This relaxes changes to the NOL rules made under the TCJA. The TCJA eliminated the carryback of post-2017 NOLs and limited these NOLs to 80% of taxable income. As a result of the CARES Act changes, taxpayers that paid taxes in one or more of the previous five tax years and have 2018, 2019, or 2020 losses can file amended returns to carry back the losses and receive refunds for those earlier years, including years when the US federal corporate income tax rate was 35% (therefore maximizing use of the NOL). The carryback period is more generous than the two-year period under pre-TCJA rules. Special coordination rules allows a taxpayer to exclude from the carryback period years in which the taxpayer had an income inclusion under the deemed repatriation tax provisions.

Temporary Suspension of Business Loss Rules for Individuals. Under changes made by the TCJA, noncorporate taxpayers can generally only deduct trade or business losses in any year up to a $250,000 limit ($500,000 limit for joint filers). The CARES Act puts this business loss limitation rule on hold until 2021 and temporarily allows noncorporate taxpayers to fully deduct business losses arising in 2018, 2019, and 2020.

Relaxation of Limits on Deducting Business Interest. For post-2017 years, taxpayers are generally limited in their ability to deduct net business interest to 30% of adjusted taxable income (ATI) for the year. The CARES Act generally relaxes this limitation to 50% of ATI for 2019 and 2020. For tax years beginning in 2020, taxpayers can elect to determine the limitation based on their 2019 ATI. Partnerships (and their partners) are subject to special rules. Partnerships are still subject to the 30% limitation for 2019 (although the 50% limitation applies in 2020), and a partner allocated excess business interest in 2019 can deduct 50% of that interest in 2020 without regard to the business interest limitation rules.

Refundable Employee Retention Payroll Tax Credit. Eligible employers can claim a refundable payroll credit (up to $5,000 per employee) against the employer's share of Social Security taxes (6.2% of an employee's wages, up to the Social Security wage cap) for 50% of qualified wages paid between March 13, 2020 and December 31, 2020. Eligible employers are either those:

Qualified wages (up to $10,000 per employee and including certain qualified health plan expenses) are:

The credit is reduced by any payroll tax credits claimed under the Families First Coronavirus Response Act (generally providing certain employers a payroll tax credit for paid sick and extended leave required by that legislation). An employer who receives a covered small business loan under the CARES Act is not eligible for the credit.

Delayed Payment of Employer Payroll Taxes. Employers (and self-employed individuals) can delay payment of the employer's share of Social Security taxes during the period March 27, 2020 to December 31, 2020. The deferred amount is paid over two years in equal installments (due by December 31, 2021 and December 31, 2022). Employers who receive small business loans that are forgiven by the CARES Act are not eligible for the payroll tax deferral.

Acceleration of AMT Credit. The TCJA removed the corporate alternative minimum tax (AMT) and allowed corporations to carry forward any unused AMT credits for refund over a four-year period (generally from 2018 through 2021). Under the CARES Act, corporate taxpayers can accelerate the use of the AMT credit to 2019 (and can elect to take the entire refundable credit amount into account in 2018).

Fixing the "Retail Glitch." The TCJA contained a drafting error that made certain commercial building improvements ("qualified improvement property") ineligible for 100% bonus depreciation, and lengthened the depreciation period for the improvements. This error made interior improvements and buildouts more expensive for retailers and restaurants on an after-tax basis. The CARES Act corrects the drafting error, and applies the change retroactively (for improvements made beginning in 2018).

Direct Cash Payments. Eligible individuals with income at or below specified levels (generally based on a taxpayer's 2019 return if filed, or if not yet filed the taxpayer's 2018 return) will receive direct cash rebate payments from the IRS, up to $1200 per adult ($2400 for joint filers) and an additional $500 per qualifying child. The amount of the rebate begins to phase out at $75,000 for individuals ($150,000 for joint filers) and is unavailable for individuals with income greater than $99,000 (greater than $198,000 for joint filers).

Access to Retirement Funds. The 10% early withdrawal penalty is waived for distributions in 2020 of up to $100,000 from qualified retirement plans for individuals diagnosed with COVID-19, whose spouse or dependent is diagnosed with the disease, or who suffers adverse financial consequences from the COVID-19 outbreak.

Charitable Deductions. The CARES Act temporarily suspends the charitable deduction limitation for individuals who itemize deductions for cash contributions to charities made in 2020. Ordinarily charitable deductions are limited to 60% of adjusted gross income.