Tax Updates during the Coronavirus Pandemic
- We hope that everyone is managing as well as can be expected during this difficult time. There’s been a lot of news, (and a lot of speculation) of stimulus payments, financial relief for small businesses, and IRS tax relief initiatives. Bernicker Eiger & Lang breaks the latest tax news down for you in simple terms.
Congress has passed an economic stimulus package known as the CARES (Coronavirus, Aid, Relief and Economic Security Act).
- Adults will receive one-time payments of $1,200 each, and those with children under the age of 17 will receive an additional $500 per child.
- The stimulus payments are reduced for single people with (adjusted gross) incomes greater than $75,000, and married couples with incomes greater than $150,000.
- Single individuals with incomes greater than $99,000, and married couples with incomes greater than $198,000 are ineligible for stimulus payments.
- The IRS will base your stimulus payment on your 2019 tax return, or your 2018 return if your 2019 return has not yet been filed.
- Stimulus payments will not be garnished if you owe money to the IRS.
Relief for businesses with 500 or fewer employees:
- Loans of up to $10 million will be available from banks to keep employees on payroll during the crisis.
- The federal government will forgive these loans, if they are used to pay payroll expenses within two months of receiving the proceeds. Yes, the federal government will actually cover some of your payroll costs.
- Amounts used for salaries greater than $100,000 will not eligible for forgiveness.
- Amounts paid in excess of $10,000 for any one employee will not be eligible for forgiveness.
- Loan forgiveness may not be granted if companies furlough workers.
- Loan forgiveness depends on strict adherence to CARES Act rules.
Unemployment insurance benefits will be expanded.
- Self-employed individuals will be able to file for unemployment.
- People able to telecommute with pay and those receiving paid sick or family leave are ineligible for unemployment benefits.
- Remember that unemployment insurance rules and benefits vary by state. Under the stimulus package, the federal government is making additional funds available to the state programs.
Rules will be relaxed for Individual Retirement Accounts (IRAs)
- IRA contributions for 2019 can be made until July 15, 2020. The same is true for Health Savings Accounts (HSAs).
- IRA required minimum distributions (RMDs) for 2020 have been suspended. However, if you already took your 2020 RMD, you are ineligible for the suspension.
- Distributions from qualified retirement plans (such as IRA’s and 401(k) plans) up to $100,000 for COVID-19-related issues are exempt from the 10% penalty tax on premature distributions.
- You qualify if you tested positive for COVID-19 or “experienced a variety of other negative pandemic-related economic consequences.”
- You can spread the income tax burden of a COVID-19-related IRA distribution over three years.
- You can return money to your IRA within the three-year period and avoid the income tax.
Payments on federal student loans are suspended through September 30th.
- Interest will not accrue during this time.
- Loans held by private lenders or state agencies are not eligible.
Some IRS filing deadlines are postponed.
- The deadline to file individual, fiduciary and C-corporation tax returns is automatically extended to July 15th
- S corporation and partnership returns are not postponed beyond extensions to September 15, 2020, which were already applied for.
- Payroll tax return due dates and payroll tax requirements have not been extended.
- You can request an extension to October 15, 2020 of a return originally due on April 15, 2020 until July 15, 2020.
The IRS is relaxing collection efforts under the IRS People First Initiative.
- Certain installment payments will be suspended between April 1st and July 15, 2020.
- The IRS will not default installment payment arrangements during this time.
- Liens and levies, by IRS field officers and by the IRS Automated Collections Unit are suspended.
Some updates on the Families First Coronavirus Response Act (FFCRA):
There are two acts within FFCRA: The “Emergency Paid Sick Leave Act” and the “Emergency Family and Medical Leave Expansion Act.”
- FFCRA applies to companies with 500 or fewer employees.
- Employers will receive 100% reimbursement for paid leave pursuant to the Act, funded by dollar-for-dollar offsets against payroll taxes.
- It pertains to leave taken between April 1st and December 31, 2020.
- FFCRA provides for a maximum of 80 sick leave hours and 10 weeks of family leave at 2/3 pay.
- You have been quarantined or are caring for someone subject to quarantine.
- You are caring for a child whose school or childcare provider is closed or unavailable.
- You cannot use 80 hours of emergency sick leave for yourself, and then another 80 hours for a family member. In this case, you would have to use expanded family and medical leave after the first 80 hours.
- You are ineligible if your employer closed prior to April 1, 2020, because of lack of work.
- You are ineligible if your employer closes before you begin leave.
- If you are furloughed due to lack of work, before or after April 1, 2020, you are ineligible for FFCRA leave.
- If you are on leave, you cannot also collect unemployment.
Bernicker, Eiger & Lang is here to help and will continue to update you on tax information as it becomes available. If you have any questions, please call us at (732) 739-8800..