by Mike Godfrey, Tax-News.com Washington
28 May 2020
On May 15, 2020, the United States House of Representatives approved the HEROES Act, which amends previous COVID-19-related stimulus legislation by changing loss carryback rules and providing further tax support for businesses and individuals.
Highlights of the bill include the following:
Losses
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed by President Trump on March 27, 2020, included a provision expanding the net operating loss carryback rules by allowing taxpayers to carry back NOLs arising in a tax year beginning in 2018, 2019, or 2020 for five years. The provision also temporarily removed the taxable income limitation to allow a NOL to fully offset income, up from 80 percent previously.
The HEROES Act would amend the CARES Act by limiting carrybacks to taxable years beginning on or after January 1, 2018. In addition, this provision prohibits taxpayers with excessive executive compensation or excessive stock buybacks and dividends from carrying back losses.
Business interruption tax credits
The HEROES Act would make the following improvements to tax credits intended to prevent business interruption:
- Increase the applicable percentage of qualified wages reimbursed through the employee retention credit from 50 percent to 80 percent, and increase the limit on wages taken into account per employee from USD10,000 for the year to USD15,000 per quarter (limited to USD45,000 for the calendar year).
- Provide a 50 percent refundable payroll tax credit for qualified fixed costs, to include covered rent obligations, covered mortgage obligations, and covered utility payments. This credit would be limited to employers with no more than 1,500 full-time equivalent employees or no more than USD41,500,000 in gross receipts in 2019.
- Provide a 90 percent refundable individual income tax credit for certain self-employed individuals who have experienced a significant loss of income.
Credits for paid sick leave and family leave
The HEROES Act would extend the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of 2021.
Other provisions
In other notable proposals, the bill would:
- Eliminate the limitation on the deduction for state and local taxes for taxable years beginning on or after January 1, 2020, and on or before December 31, 2021.
- Make the child tax credit fully refundable for 2020 and increase the amount to USD3,000 per child (USD3,600 for a child under age 6).
- Expand the eligibility and the amount of the earned income tax credit for taxpayers with no qualifying children for 2020.
- Provide a USD1,200 refundable tax credit for each family member, paid out in advance payments, similar to the Economic Impact Payments in the CARES Act. The credit is USD1,200 for a single taxpayer (USD2,400 for joint filers), in addition to USD1,200 per dependent up to a maximum of three dependents.
Next steps
The HEROES Act must also be passed by the Senate. However, given that the bill was approved by the Democrat-controlled House along bipartisan lines, and that the Republicans hold a majority in the Senate, the bill is not expected to be approved – at least not in its current form.