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By Alyzabeth R. Smith, CPA

I think it’s safe to say 2020 has not been the year we anticipated. As soon as the ball dropped on Times Square, out came 3,000 pounds of confetti followed by murder hornets and coronavirus. As the new year unfolded, “losing weight” and “working out more” took a back seat to “staying safe” and “keeping a job.”

The CARES Act was signed into law on March 27, 2020, to provide the public relief from the economic shock that the coronavirus pandemic caused. Understanding this law and its application continues to mature, so practitioners may find the points below useful in their client communications.

Taxpayers who were eligible for stimulus checks (also known as “economic impact payments”) may have questions about the disbursements made in the first half of 2020. As the stimulus payments were dependent on the information provided in either 2018 or 2019 tax filings, the timing of taxpayers’ 2019 filings may have affected the amount issued to each household.

As the guidance currently stands, the payments issued and the income from which they were based will be reconciled on taxpayers’ 2020 tax returns. These filings will likely take into consideration the following factors:

• Economic impact payments are not considered taxable income to the recipient and will not reduce refunds or increase balances due on 2020 tax returns.
• If 2018 income was the basis for the stimulus payment issued, but a larger payment would have been generated if 2019 income was used, the additional amount will be adjusted on the taxpayer’s 2020 tax return. The adjustment cannot reduce the credit below zero. If the 2020 reconciliation shows the taxpayer received more of an economic payment than they were entitled, the excess will not have to be repaid.
• The following economic impact payments should be returned.
  - Payments made to a decedent (partial repayment for joint returns with a surviving spouse)
  - Payments made to incarcerated parties (partial repayment for joint returns with a non-incarcerated spouse)

As 2020 tax forms have yet to be released, the preceding information is subject to change in accordance with subsequent legislative guidance.

The calendar year is beginning to wind down, so be sure to look at these CARES Act considerations too:

• A five-year carryback is allowed for net operating losses generated in tax years 2018, 2019, and 2020.
• For tax years 2019 and 2020, the business interest expense limitation has increased from 30% to 50%.
• The CARES Act included the technical correction that officially legislated a 15-year recovery period for qualified improvement property, making such property eligible for bonus depreciation.
• The Tax Cuts and Jobs Act restricted individuals to no more than $250,000 ($500,000 married filing jointly) of business losses when used to offset nonbusiness income. The CARES Act repeals the limitation for tax years preceding Jan. 1, 2021.
• Employers (including self-employed individuals) may defer payment of the employer portion of certain payroll taxes, provided the deferral is paid over a subsequent two-year period.
• Minimum funding contributions for single-employer pension plans due in 2020 can be made (with interest) until Jan. 1, 2021.

Congress continues to debate additional ways to ease the impact of the current economic crisis. As 2020 began with a series of unexpected twists, there’s a good chance there will be more surprises to come.

Alyzabeth R. Smith, CPA, is a senior associate at The Siegfried Group in Wilmington, Del., and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at alyzabeth_smith@msn.com.

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