Tax Update (May 18)
Tax Credits Included House Dems ‘HEROES’ Act
The ‘Health and Economic Recovery Omnibus Emergency Solutions’ (HEROES) Act was introduced by House Democrats on Tuesday (May 12). The legislation calls for another round of $1,200 stimulus checks per single taxpayer and an additional $1,200 per dependent for up to three dependents. It would also expand the number of people eligible for the current round of stimulus checks to include $500 payments for dependents aged 17-24.
The plan would expand the eligibility of and increase the Earned Income Tax Credit and Child Tax Credit. Additionally, the legislation would temporarily eliminate the limitation on the deduction of state and local taxes (SALT) for taxable years 2020 and 2021. A $500 above-the-line deduction would be allowed for certain first responders and front line workers for unreimbursed expenses relating to supplies or equipment.
The bill would increase the applicable percentage of qualified wages reimbursed through the Employee Retention Credit from 50 percent to 80 percent as well as allow state and local governments to claim the break. This legislation also includes a 50 percent refundable Payroll Tax Credit for qualified fixed costs like rent, mortgage, and utility payments.
Additionally, HEROES would clarify expenses paid with money from the Paycheck Protection Program (PPP) would be deductible.
Of note, the legislation repeals a provision in the CARES Act dealing with excess business losses and limits operating loss carrybacks.
The House will vote on the HEROES Act Friday (May 15).
Brady Pushes for Payroll Tax Cut
On Wednesday (May 13), House Ways and Means Ranking Member Kevin Brady (R-TX) urged the White House to continue arguing for payroll tax cuts for businesses and employees. He stated that these cuts would create a seven percent pay raise and motivate people to go back to work. Additionally, Brady advised lawmakers to determine whether or not employers should be allowed to receive a tax deduction for costs that were paid for through emergency federal loans.
Brady’s proposal has drawn skepticism from other lawmakers due to the possible negative impact on Social Security, which is funded by payroll taxes. Brady has yet to receive any support on his ideas from fellow Republican leaders.
France Moves Forward with Digital Tax Plans
France is pressing forward with plans to collect a Digital Services Tax (DST) aimed at international tech companies like Apple, Amazon, and Google.
“Never has a digital tax been more legitimate and more necessary,” French Finance Minister Bruno Le Maire stated while noting that tech companies are feeling significantly less of the economic impact from the crisis in comparison with other businesses.
American companies oppose Le Maire’s efforts, saying that it could negatively affect a global consensus through the Organization for Economic Cooperation and Development (OECD) talks. Treasury Secretary Steven Mnuchin has published the Trump administration’s disapproval of DSTs. Mnuchin has simultaneously pushed to allow businesses to opt out of participating in the global tax framework resulting from the OECD talks.
Hawley Plans to ‘Rehire America’
Sen. Josh Hawley (R-MO) has formulated a proposal, dubbed the “Rehire America” plan, to offer financial support to businesses who rehire workers that were laid off and keep workers still currently employed. Hawley has pushed the Republican party to focus on mitigating future layoffs. Senator Cory Gardner (R-CO) also expressed his support for the proposal.
The plan would provide a refundable payroll tax rebate that would cover 80 percent of wages up to $50,000. The rebate would cover existing employees and offer a bonus to businesses that rehire laid off workers.
The proposal faces an uphill battle as Senate leadership has hinted that they want to wait for the full effect of the previous $3 trillion coronavirus response packages before supporting any more spending. The proposal will require more high-profile support before it will be taken seriously by leadership.
Paycheck Protection Program
The Small Business Administration (SBA) will provide “safe harbor” to companies that borrow less than $2 million from the Paycheck Protection Program. SBA also released an interim final rule that clarified certain electric cooperatives that are exempt from federal income tax are eligible for Paycheck Protection Program loans.
On Tuesday (May 12), the Treasury Department and IRS released proposed regulations concerning the deductibility of certain fines and penalties paid to the government as a result of legal proceedings.
Treasury and IRS issued final regulations on whether certain interests in corporations will be treated as stock or debt on Wednesday (May 13).
Lorenzo, Aaron. “Brady encourages White House to keep pushing payroll tax cut.” Politico Pro, 13 May 2020.
Thomas, Leigh. “France to impose digital tax this year regardless of any new regulatory levy.” Reuters, 14 May 2020.
Lorenzo, Aaron. “Morning Tax.” Politico, 15 May 2020. https://link.edgepilot.com/s/c53890d4/qLubr_A45k_UtNmC3FzBFw?u=https://www.politico.com/newsletters/morning-tax/2020/05/15/french-pick-fresh-digital-tax-fight-787641
 Everett, Burgess. “Gardner joins Hawley’s massive coronavirus jobs bill.” Politico Pro, 14 May 2020.
“Sen. Hawley Outlines Phase 4 Relief Plan: Rehire Workers & Bring Supply Chains Back.” Josh Hawley, 3 April 2020.
Primack, Dan. “Paycheck Protection Program borrowers get more flexibility.” Axios, 15 May 2020.
Eckert, Toby. “Treasury, IRS flesh out rules on deductibility of corporate fines.” Politico Pro, 12 May 2020.
“Treasury, IRS detail final rules on classifying interest in corporations.” 13 May 2020. https://link.edgepilot.com/s/f86073f0/r4F-y1LfokWFFah5yjXi5A?u=https://subscriber.politicopro.com/article/2020/05/treasury-irs-detail-final-rules-on-classifying-interests-in-corporations-3980503