Recent legislation, such as the Families First Coronavirus Response Act and the Coronavirus, Aid, Relief, and Economic Security (CARES) Act has provided some financial and tax relief for certain taxpayers.
Filing and Payment Deadline
The April 15, 2020 due date for a C corporation federal income tax return or payment is automatically postponed to July 15, 2020. Because the postponed deadline is automatic, no extension is required to be filed. No interest or penalty will accrue until July 16, 2020. There is no limitation on the amount of payment due that can be postponed to July 15.
Note: The postponed deadline does not apply to partnership or S corporation income tax returns due on March 15, 2020.
Estimated tax. First quarter estimated tax payments usually due April 15 are postponed to July 15. Second quarter estimated tax payments remain due June 15.
State tax returns. Most states have also extended certain filing and payment deadlines, but some states have implemented different due dates or not conformed. Be sure to confirm with each state for the most updated information.
Paid Sick Leave and Family and Medical Leave. All employers with fewer than 500 employees must provide an employee with paid sick leave and expanded family and medical leave, subject to certain conditions and limitation, to the extent the employee is unable to work (or telework) because of COVID-19-related circumstances, which includes if:
The paid leave provisions are effective April 1, 2020, and apply to leave taken between April 1, 2020, and December 31, 2020.
Small business exemption. There is a small business exemption for a business with fewer than 50 employees, if providing childcare-related paid sick leave and expanded family and medical leave would jeopardize the viability of the business as a going concern.
Payroll credit for required paid sick leave. An employer is allowed a credit against the payroll tax imposed on the employer for each calendar quarter in an amount equal to 100% of the qualified sick leave wages paid by the employer during the calendar quarter, subject to certain limitations.
Credit for certain self-employed individuals. An eligible self-employed individual is allowed a refundable tax credit for the 2020 tax year for a qualified sick leave equivalent amount.
Employee Retention Credit
A refundable payroll tax credit is available for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose:
The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID- 19-related circumstances.
For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020, through December 31, 2020. Employers who take covered loans are not eligible for the credit.
Example: Darla’s Deli continues to pay employee Frank his full week’s wages the week of March 30 even though the deli limited store hours during that week due to COVID-19 related circumstances. Frank’s wages for a full week would normally be $600. Darla’s Deli is eligible for a credit of $300 ($600 × 50%) for the wages paid to Frank during that week.
Payroll Tax Deferral
Employers and self-employed individuals may defer payment of the employer share of Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. The deferred tax must be paid over the following two years, with one-half of the deferred amount required to be paid by December 31, 2021, and the other half by December 31, 2022. This deferral is only for the employer portion of Social Security tax. The employee portion of Social Security tax is not deferred. The 1.45% Medicare tax is not deferred for employers or employees.
Qualified Improvement Property
The technical error that has prevented qualified improvement property from being treated as 15-year property and eligible for special depreciation has been fixed. This change is retroactive to tax years beginning after December 31, 2017. This change will increase a company’s access to cash flow by allowing it to amend a prior year return, but also incentivizes it to continue to invest in improvements.
Net Operating Loss (NOL)
A net operating loss (NOL) is subject to an 80% taxable-income limitation and cannot be carried back to reduce income in a prior tax year. However, under the CARES Act, an NOL arising in a tax year beginning in 2018, 2019, or 2020, can be carried back to each of the five years preceding the year of the loss. In addition, for tax years beginning before January 1, 2021, the 80% taxable income limitation is temporarily repealed.
Excess Business Loss Limitation
The CARES Act modifies the loss limitation applicable to pass-through businesses and sole proprietors. Excess business losses arising in tax years after December 31, 2017 through December 31, 2020 are allowed.
Business Interest Limitation
The 30% business interest limitation is increased to 50% (with adjustments) for 2019 and 2020. This provision will allow a business to increase liquidity with a reduced cost of capital, so that it is able to continue operations and keep employees on payroll.
Prior Year AMT Credit
Previously, the corporate alternative minimum tax (AMT) was repealed, and corporate AMT credits were made available as refundable credits over several years, ending in 2021. A company can accelerate recovery of those AMT credits, permitting it to claim a refund now and obtain additional cash flow.
Federal Excise Tax on Alcohol
The federal excise tax is waived on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020.
Recent legislation, such as the Families First Coronavirus Response Act and the Coronavirus, Aid, Relief, and Economic Security (CARES) Act has provided some financial and tax relief for certain taxpayers. The following is a summary of some of the provisions.
Filing and Payment Deadline
The April 15, 2020, due date for any person (individual, trust, estate, or unincorporated business entity) who must file a federal income tax return or has any amount of federal income tax due, is automatically postponed to July 15, 2020. The postponed deadline is automatic, meaning no extension is required to be filed. No interest or penalty will accrue until July 16, 2020. You do not have to be sick or quarantined, or have any other impact from COVID-19 to qualify for the postponed deadline.
Estimated tax. First quarter estimated tax payments usually due April 15 are postponed to July 15. Second quarter estimated tax payments remain due June 15.
State tax returns. Most states have also extended filing and payment deadlines, but some states have implemented different due dates or not conformed. Be sure to confirm with each state for the most updated information.
Contributions made by due date. Generally, contributions made to an individual retirement arrangement (IRA) or a health savings account (HSA) applicable for tax year 2019, must be made by April 15, 2020. Because the due date has been postponed to July 15, you have until July 15 to make 2019 contributions to an IRA or HSA.
2016 tax return. The postponed deadline applies only to 2019 tax returns. Any claim for refund for tax year 2016 must be filed by April 15, 2020.
Recovery Rebates (Stimulus Payment) A one-time recovery rebate is an advance refundable credit against your 2020 taxes and equal to $1,200 for individuals ($2,400 for joint filers), plus an additional $500 per child under age 17 who qualifies for the Child Tax Credit.
Eligibility. All U.S. residents with adjusted gross income (AGI) up to $75,000 ($112,500 for Head of Household, $150,000 Married Filing Jointly), who are not claimed as a dependent of another taxpayer, and have a work-eligible Social Security Number, are eligible for the full rebate amount. This is true even if you have no income, or if your income comes entirely from nontaxable means-tested benefit programs, such as SSI benefits. The threshold amount is based on 2018 AGI (unless a 2019 return has already been filed).
Phaseout. The rebate amount is reduced by $5 for each $100 that your AGI exceeds the phaseout threshold. The rebate is completely phased-out at $99,000 (Single), $146,500 (HOH), and $198,000 (MFJ).
How to receive. For most individuals, no action is required in order to receive the recovery rebate. It will be direct deposited if you have authorized a direct deposit or direct debit for your most recently-filed tax return. Otherwise, a check will be mailed to your last known address. The rebate may be offset by past-due child support, but not any other federal or state debt.
Retirement Plan Distributions
COVID-19-related distribution. The 10% early-withdrawal penalty is waived for COVID-19-related distributions up to $100,000 from qualified retirement plans or IRAs. A COVID-19-related distribution is one made during the 2020 calendar year to an individual who is diagnosed with COVID-19 by a CDC-approved test, whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, or closing or reducing hours of a business owned or operated by the individual. Any income from an early withdrawal can be included in income ratably over a 3-year period. The withdrawn amount can also be recontributed over three years without regard to annual contribution limits.
Retirement plan loans. Plan loan limits are increased from $50,000 to $100,000 and loan repayment may be delayed up to one year.
Required minimum distribution (RMD). RMDs are waived for calendar year 2020. If you are currently taking RMDs, you are not required to do so for 2020. This also includes your first RMD, which you may have delayed from 2019 until April 1, 2020.
Charitable Contributions
New deduction. Beginning in 2020, a new above-the-line deduction up to $300 is available for individuals who do not itemize deductions.
Limitations. For 2020 only, the 50% AGI limit for cash donations by individuals is suspended. If you itemize, you may deduct cash contributions up to your AGI. Any excess contribution amount may be carried forward.
Health Savings Account (HSA)
COVID-19 health benefits. A high-deductible health plan (HDHP) may pay for COVID-19 health benefits before the minimum deductible requirements are satisfied. Health benefits provided by an HDHP may include medical care services and items purchased related to testing and treatment. Vaccinations, once available, are treated as preventive care.
Over-the-counter (OTC) medicines. Beginning in 2020, OTC medications may be purchased using HSAs, flex spending arrangements (FSAs), and Archers MSAs. This includes pain and allergy relief medications without a prescription.
In addition, menstrual care products have been added to qualified medical expenses.
Unemployment
A temporary new program provides unemployment benefits for those individuals not traditionally eligible (self-employed, independent contractors, limited work history), who are unable to work as a direct result of COVID-19 public health emergency.
Student Loans
Some relief is available for federal student loan borrowers. Most provisions apply only to Direct Loans and Federal Family Education Loans (FFEL) not in default that are currently owned by the U.S. Department of Education. Perkins Loans, private loans, or commercially-held FFEL loans are not eligible.
Payment suspension. All payments due for eligible federal student loans are suspended until September 30, 2020.
Each month of suspension will count toward a loan payment for the purpose of any loan forgiveness program or loan rehabilitation program. This means suspended payments are considered qualifying payments for incomebased repayment, Public Service Loan Forgiveness, or defaulted loans enrolled in a rehabilitation program.
Interest waiver. During the period of payment suspension, no interest will accrue. For eligible federal student loans, the interest rate is 0% until September 30, 2020.
Collections. During the period of payment suspension, wage garnishments, refund offsets, federal benefit reductions, or any other involuntary collection activity are also suspended.
Employer educational assistance. If your employer provides educational assistance fringe benefits, up to $5,250 may be excluded from taxable income for employer payments to your student loan from March 27, 2020 through December 31, 2020. The $5,250 limit applies to student loan payments and tuition assistance payments combined. You cannot claim a student loan interest deduction for employerpaid interest.
