Coronavirus Tax Relief
The federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments to July 15, 2020, without penalties and interest, regardless of the amount owed. Taxpayers do not need to file any additional forms to qualify for this automatic federal tax filing and payment relief due to Coronavirus. Taxpayers who are due a refund to file as soon as possible as most tax refunds are still being issued within 3 weeks.
Stimulus checks will be going out via direct deposit (or mail) in amounts $1,200 for Individual and $2,400 for couples and $500 per child. To qualify for the full amount, your income (your W-2 wages or if self-employed, your net business profits) must be less than $75,000 for singles and $150,000 for married filing jointly. The check amounts will phase out and you will not receive a check if you make more than $99,000 single and $198,000 married filing jointly. Income levels are based on your 2018 tax return or year 2019 if filed and processed by the IRS. If you owe the IRS money, you are still expected to receive a check. It is less clear if you don’t file a tax return, the amount you would receive and how. If you file as head of household, you will receive the full check if you make less than $112,500, in addition to $500 per child.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, which passed the Senate by a 96-0 vote, expands unemployment benefits to include the self-employed. In addition to your state benefit, you are eligible to receive four months of weekly payments of $600.
In addition to the stimulus, the Act also contains tax provision related to retirement, business losses and charitable contributions. Taxpayers are now allowed to withdraw $100,000 from their retirement plans without being subject to the ten percent early distribution penalty. The bill also allows for expanded retirement plan loans, with payment being delayed. It is important to note that distributions are taxable income, while loans are not. Also, required minimum distributions are suspended for 2020.
Most taxpayers no longer have the option to carryback a net operating loss (NOL) as most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Under the new tax law, the bill temporarily repeals the 80% income limitation for net operating loss deductions for years beginning before 2021. For losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers can elect to forgo the carryback). Regarding charity, the Act also allows for at $300 deduction for charity contributions, without formally itemizing your deductions.
The bill creates an employee retention credit for employers that close due to the coronavirus pandemic. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. In addition, the bill delays payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.
In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit.
If you are self-employed and accustomed to making estimated payments for 2020, guidance should be forthcoming regarding payment dates. For taxpayers who don’t have taxes withheld from their paychecks, current year estimated tax payments are due 04/15, 06/15, 09/15 and 01/15/21. Generally, most taxpayers will avoid penalty for underpayment of estimated tax if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
Many states (Virginia is only 30 days) are matching the automatic extension for filing and payment of the IRS. As of this writing, some states (like New York) have yet to officially announce their extension policy. In Washington, D.C. Mayor Bowser announced that the deadline for taxpayers to file and pay their 2019 District of Columbia individual and fiduciary income tax returns (D-40, D-41, and D-40B), partnership tax returns (D-65), and franchise tax returns (D-20, D-30) is extended to July 15, 2020, which means taxpayers will have an additional 90 days to file and pay from the original deadline of April 15, 2020. OTR will automatically waive interest and late payment penalties of sales and use taxes for all businesses (except hotels and motels) for periods ending on February 29, 2020 and March 31, 2020 provided that payment of all taxes due for these periods are paid in full by July 20, 2020. The real property tax payment deadline will remain March 31, 2020.
Through the Families First Coronavirus Response Act, small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis.
High-deductible health plans (HDHPs) can pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status. An individual with an HDHP that covers these costs may continue to contribute to a health savings account. Health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. Vaccination costs continue to count as preventive care and can be paid for by an HDHP.
Finally, if you owe the IRS back taxes now might be a great time to settle those amounts or request a deferment until your financial situation improves. If you have any questions regarding tax relief and tax changes as relates to coronavirus, please don’t to hesitate to contact your tax attorney.