Among the things changing in the chaotic environment of the Coronavirus / COVID-19 pandemic is tax policy. Here’s an update from Safe Harbor LLP on COVID-19 Tax Legislation changes that may impact our San Francisco Bay Area clients. Note: issues are subject to change, so please reach out to us for a one-on-one consultation on your individual tax situation vis-a-vis COVID-19 legislative changes! This is a preliminary statement and should not be construed as “tax advice.”
THE CARES ACT: CHANGES TO TAX DEADLINES
In late March, the US Congress passed the CARES Act, which provided a cornucopia of relief for individuals and businesses. The first question then is “who is covered and until when?” The answer for individuals is taxpayers who filed in 2019 or will file in 2020. In addition, the government (both federal and California) have extended the filing deadline until July 15, 2020 including the deadline for payment of taxes due. In addition, quarterly tax payments originally due on 4/15/2020 are now due on 7/15/2020.
Some returns, however, are NOT extended. At the time of this writing these are Estate (form 706) returns, Partnership or S-Corporation Return originally due March 15, 2020, forms due between April 15 and July 15th (for example, Form 990s originally due May 15, 2020), Form 4446, Corporation Application for Quick Refund of Overpayment of Estimated Tax, and payroll and excise tax returns. Claims for a refund for a 2016 tax return are still due on April 15, 2020. Contributions to HSAs / IRAs are extended as well.
The situation for entities that file quarterly is more complex. Check with your tax preparation provider to find out when your returns may be due. Importantly, the claim for refunds for past years (e.g., 2016) is NOT extended!
FAMILIES FIRST CORONAVIRUS RELIEF ACT
The federal government has also expanded various benefits to families and individuals such as the following. Effective 4/1/2020, COVID-19 testing is now free and mandated to all insurance companies. There are extensions to unemployment insurance as well as extensions to paid emergency family leave and medical leave. In some situations, meals for children in school are now available; check with your local school system. The Coronavirus Relief Act added a new “reason” for 12 weeks of leave for any period beginning April 1, 2020 and ending December 31, 2020, you are eligible if you have a “qualifying need” related to a “public health emergency” described in Section 110, which was added to the 1993 Act by the new legislation.
Businesses both large and small face new requirements to provide paid emergency family and medical leave. The situation is fluid, so check with your tax preparer to assess your individual situation. Additionally, new requirements exist for paid sick leave. There are six reasons that may indicate a requirement for paid six leave –
- Subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
- Advised by a health care provider to self-quarantine due to concerns related to COVID-19.
- Experiencing symptoms of COVID-19 and seeking a medical diagnosis.
- Caring for an individual who is subject to quarantine or has been advised to self- quarantine.
- Caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions.
- Experiencing any other substantially similar condition.
Note that grants and tax credits may be available for sick leave issue to the employer. Self-employed individual face special situations and can apply for some types of relief.
SECTION 139: DISASTER RELIEF PAYMENTS
Because President Trump issued an “emergency declaration” related to the COVID-19 pandemic, the IRS this to delay tax season until July 15th by relying on Section 7508A(a) of the Internal Revenue Code, which can only be done when there is a “federally declared disaster” pursuant to Code Section 165. This means that certain types of expenses may become tax deductible if they are related to the disaster.
2020 STIMULUS PAYMENTS
Certain stimulus payments will be calculated by the IRS with look-backs to previous year tax returns. The credits are $1,200 for single, head of household, or married filing separately. $2,400 for married filing jointly, and $500 for each child under 17 at the end of the tax year. There are phase out provisions based on income, however. In some situations, it may be advantageous to delay filling your 2019 tax returns, if that income is above the threshold.
PAYCHECK PROTECTION LOANS
The CARES Act simply modifies Section 7(a) of the Small Business Act, so if you want to FULLY understand the new Paycheck Protection Act, you have to also understand Section 7(a) of the SBA. New “Paycheck Protection Loans” under Section 7(a)(36) will be available during the “covered period,” from February 15, 2020 – June 30, 2020. The loans are available from SBA and Treasury approved banks and credit unions. Loans are guaranteed by the SBA 100% until December 31, 2020; will be guaranteed at 85% for loans less than $150,000, and 75% for loans over $150,000, after that date. You don’t need to establish that you were unable to get credit elsewhere. No personal guarantee is required. No collateral is required. There will be no prepayment penalties, no guarantee fees, and no yearly fees. Other loans are available under Section 7(b)(2) of the SBA. Another option is the so-called “Emergency Grant.” These are loans of up to $10,000 which may not be required to be repaid.
RETIREMENT PLAN CHANGES
The CARES act also made changes to how retirement plans work. For example, RMD (required minimum distribution) limits have been changed. In addition, the loan amounts have been increased from $50,000 to $100,000 from the retirement plan. In addition, plans are allowed to suspend making required minimum distributions in 2020. This suspension would also apply to participants who turned age 70-1/2 in 2019 and had not yet received their 2019 distribution.
Additional changes are made. For example, there is a new “Employee Retention Credit,” which is a new credit to encourage employers to retain employees and maintain salary during the rest of 2020. The credit is against payroll – not income – taxes. Specifically, the employer’s share of the Social Security tax, so 6.2% of wages paid. It is fully refundable. First, however, the payroll tax is reduced by qualified sick leave and family leave credits as discussed previously. If you own a business, check with your tax preparer for specific rules.