The deadlines to FILE and PAY federal income taxes are extended to July 15, 2020. Taxpayers can defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax. Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. You will automatically avoid interest and penalties on the taxes paid by July 15.
This relief also includes estimated tax payments for tax year 2020. The first estimate installment originally due April 15, 2020 has been extended to July 15, 2020. The second installment which was due June 15, 2020 has also been postponed until July 15, 2020; however, the third installment remains due September 15, 2020, and the fourth final installment is due January 15, 2021.
Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension by filing Form 4868. Businesses who need additional time must file Form 7004.
Current Installment Agreements
For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Further, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.
Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act)
In response to the economic harm that the COVID19 virus has caused, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020. The Act initially provides an estimated $2 trillion in assistance, including almost $500 billion in individual rebate checks, another $500 billion in individual rebate checks, another $500 billion to support businesses and industries that have seen their operations affected, $400 billion in tax credits to businesses for wages and payroll tax relief, $300 billion to support various state and local governments and $150 billion to support the health care system.
INDIVIDUAL PROVISIONS
Recovery Rebates are payments being made directly to individuals and families below certain income thresholds. The rebate is an advance refund of a newly created 2020 tax credit. The rebate amounts of $1,200 for an individual; $2,400 for a married couple and $500 for qualifying children under the age of 17 will be available to single filers whose adjusted gross income (AGI) is less than $75,000, to joint filers with AGI less than $150,000 and for head of household filers with AGI less than $115,500.
What about taxpayers with AGI above the threshold amounts? Based on a phase out formula, the rebates will be completely phased out for single filers with AGI of $99,000, joint filers with AGI of $198,000 and $136,500 for heads of households. Taxpayers with qualifying children will be subject to higher AGI limits before their rebate is completely phased out.
What if the taxpayer’s income drops below the AGI threshold in 2020, even if their income was too high for the cash flow assistance provided by the immediate cash payment? While people in this situation will receive the help, the provision is designed to provide a credit that will be available on the 2020 tax return when completed in 2021, nonetheless.
Conversely, if a taxpayer’s income was low enough to qualify in 2018 or 2019 but their income was above the threshold in 2020, the tax credit will NOT be called back when their 2020 return is filed.
The Treasury Department indicates that the “as soon as possible” guidance provided by the Act means payments will start to get into taxpayer’s hands in April and continue into May and beyond. Those taxpayers that do not have direct deposit information with the IRS may be waiting from 1-4 months for their physical checks to arrive. The Act indicates that the IRS will send a confirmation letter within 15 days of having made the payment, which will provide a phone number to report any payment issues.
Elimination of 10% Additional Tax for Coronavirus-Related Retirement Plan Distributions
An exception to the 10% distribution penalty is provided by the CARES Act for “coronavirus-related” distributions of up to $100,000 made to a qualified individual for pre-59 ½ distributions from retirement accounts but would still be subject to regular income taxes.
These distributions may be repaid over three years by redepositing any or all of the distribution back into their retirement account. The funds can be returned as a single contribution or as a series of contributions made over the three-year time frame starting the day after the distribution is taken.
A taxpayer can elect to have all the income reported in 202 or may split it evenly between the 2020, 2021 and 2022 tax years.
Loans from Employer-Sponsored Retirement Plans
Employer-sponsored plans, such as 401(k)s and 403(b)s, may contain loan provisions. If you participate in a plan that includes a loan provision, the CARES Act expanded the availability of these types of loans to the lesser of 100% of the account balance or $100,000.
Loan repayment can be delayed for up to one year on loans made through December 31, 2020.
Required Minimum Distributions (RMDs) Waived in 2020
RMDs on all retirement plans are suspended for 2020. This includes Traditional, SEP, and SIMPLE IRAs, and employer plans such as 401(k)s, 403(b)s and governmental 457(b)s.
If you already took your RMD for 2020 and wish to return those funds to the account to avoid paying tax, there are two options. If the initial distribution was taken within the last 60 days, you may return the funds to the account as a 60-day rollover. You are only allowed one rollover per 365-day period, so you must not have done a rollover in the prior 365 days and you will not be allowed to do one for the next 365 days.
If you are already outside of your 60-day window and you are able to meet the definition for a coronavirus-related distribution, as described earlier, you would have three years to return the amount you initially distributed as an RMD. While the definition of this distribution typed is overly broad, it is not unlimited and not everyone will be able to qualify for it, such as non-spouse inherited IRAs.
Enhanced Tax Benefits for Charitable Contributions
The CARES Act allows a charitable cash contributions deduction of up to $300 for taxpayers that do not itemize.
Student Loan Relief
Student loan payments are deferred until September 30, 2020 under the CARES Act and no interest will accrue during this time.
Unemployment Compensation Benefits Expanded
Under Pandemic Unemployment Assistance, self-employed individuals and others who are typically ineligible for unemployment or have run out of such insurance will be eligible for up to 39 weeks of benefits due to this provision.
The Federal Government has offered to pay states to provide unemployment compensation immediately, foregoing the one-week waiting period.
Regular unemployment compensation is increased by $600 per week. States can increase the unemployment benefits they pay by up to $600 per week for up to four months using Federally provided dollars.
Unemployment compensation is extended by 13 weeks.
BUSINESS PROVISIONS
Paycheck Protection Program and Forgivable Loans
The Paycheck Protection Program is a loan program that allows lenders to issue Small Business Administration (SBA) 7(a) small business loans up to a maximum of $10 million of 2.5 times the average monthly payroll costs over the previous year to businesses that have fewer than 500 employees.
These “businesses” include sole proprietorships and food service business that employ fewer than 500 people per physical location.
The loan proceeds may be used for payroll costs, group health insurance premiums or other healthcare costs, salaries and/or commissions, rent, mortgage interest and utilities.
Borrowers are required to make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
The initial round of funding of $350 billion was exhausted in 2 weeks. Congress approved an additional $310 billion in funding on April 23.
Loan Forgiveness
The amount of the loan eligible to be forgiven is the amount spent during the first 8 weeks after the loan is made on the following items:
payroll costs, excluding amounts for individuals with compensation great than $100,000; rent due to a lease in force prior to February
15, 2020; electricity, gas, water, transportation, phone and/or internet access for services which began before February 15, 2020 and
group health insurance premiums and other healthcare costs.
To be eligible for forgiveness, the business must keep the same number of employees from February 15, 2020 through June 30, 2020 that it had from January 1, 2020 through February 14, 2020. Any debt forgiven is not included in taxable income.
Employee Retention Credit
The CARES Act provides a payroll tax credit as an incentive to encourage businesses from making layoffs. To be eligible for the credit the operations of the company need to have been fully or partially suspended due to governmental intervention because of the coronavirus OR revenue in 2020 is less than 50% of the revenue from the same quarter in 2019.
Payment of Payroll Taxes Deferred
Employers are eligible to defer payroll taxes due from March 27, 2020 through December 31, 2020. 50% of the payroll tax liability is due December 31, 2021 and 50% is due on December 31, 2022. This relief also applies to the employer portion of self-employment taxes.
This provision is not available to businesses who participate in the SBA loan forgiveness program.
Net Operating Loss Carrybacks
Net operating losses (NOL) that were accrued in 2018, 2019 or 2020 can now be carried back up to five years. Unused losses can still be carried forward indefinitely. NOLs are also able to offset up to 100% of taxable income in 2018, 2019 and 2020 (up from 80%).
These changes allow companies with NOLs to amend their prior years’ returns to claim refunds of amounts previously paid to further enhance their current cash flow picture.
Minimum Tax Credit is Accelerated
The CARES Act allows business to claim outstanding Minimum Tax Credits (MTCs) starting in 2019 (originally 2021). The CARES Act allows corporations to claim 100% of AMT credits in 2019. The option also exists to make an election to take the entire refundable credit amount in 2018. The application for a tentative refund must be filed before December 31, 2020.
MYTH vs. TRUTH
Myth:
Non-Filers:
If you are not required to file a federal income tax return, you will not be eligible for the Recovery Rebate.
Truth:
If you do not file taxes, use the IRS.Gov website and go to “Non-Filers: Enter Your Payment Info Here” application to provide simple information so you can get your payment. You should use this application if you have a social security number and cannot be claimed as a dependent of another taxpayer
-AND-
you did not file a 2018 or 2019 federal income tax return because your gross income was under $12,200 ($24,400 for married couples). This includes people who had no income.
-OR-
you were not re