Understanding tax implications for COVID-19 programs

A few tax items contractors should know about these programs

By Ryan Gartman, CPA, CMA, principal and Sarah Evans, director, CLA (Clifton Larson Allen LLP)

Recent developments in federal tax and economic incentives have been “fast and furious.” Our federal legislators have enacted business support through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the likes of which has never been seen before. The construction industry and the people behind it have benefited greatly.

As Wisconsin-based construction enterprises, we generally need to ask, “Do the tax and economic incentives apply to WI tax law as well?” There is good news, as much of the recent legislation will apply to Wisconsin tax burdens. Take a look:

Business incentives —

Positive:

  • The CARES Act allows a business to make student loan payments of principal and interest on behalf of it’s workforce and this benefit is not taxed to the employee. Wisconsin has conformed.
  • Your employees have much more flexibility with over the counter H.S.A. eligible expenses under the federal CARES Act. Wisconsin gave “the nod” on this as well.
  • With today’s remote work development, telehealth and remote care services are a functional need to uphold the health of the workforce. Plans may provide this benefit without deductibles associated with it and still maintain H.S.A. compatibility. Wisconsin has conformed.

Neutral:

  • The “retail glitch” was corrected for qualified improvement property. We received clarification regarding depreciation and shorter life treatment in the recent CARES Act. Wisconsin is following suit with those shorter lives. However, Wisconsin continues to not allow initial year bonus depreciation for qualified improvement property.
  • Paycheck Protection Program forgiveness relief is not included in taxable income under the federal CARES Act incentives; however, the IRS is currently taking the position that expenses associated with that forgiveness relief are not deductible, thereby negating any tax related benefit of the forgiveness program. Wisconsin has adopted federal treatment of these dollars as well. Nothing lost, nothing gained is our perspective.

Personal developments —

Positive:

  • Required minimum distribution waivers for 2020 will apply to Wisconsin as well. This allows your retirees to allow their retirement funds to grow without incurring a current year tax on those distributions.
  • Early withdrawals of retirement funds due to COVID-19 related needs will not incur any penalties with the IRS nor in Wisconsin.
  • The CARES Act charitable limit and above the line deductibility incentives are not reduced for Wisconsin deduction and credit purposes.

Thanks to your ABC governmental and legislative advocates, Wisconsin has continued these federal incentives and provided for less compliance costs related to these incentives.

Ryan Gartman, CPA, and Sarah Evans, state and local tax expert, are with ABC member CLA (Clifton Larson Allen LLP). Ryan can be reached in Sheboygan at 608-803-5897 and Sarah can be reached in Wauwatosa at 414-465-5561. Visit the website at CLAConnect.com

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