Coronavirus—Protecting you and our staff
Hello, and welcome to our Covid-19 information portal.
Below you’ll see the latest updates on legislation and programs that were created to help American people and businesses during the current Coronavirus pandemic. We are considered an essential business and remain working on your behalf. A portion of our staff work in the office, but we are conducting most of our business over the phone, Zoom calls, and e-mail.
As we continue to receive updates they will be posted here on our website. We hope this information is helpful to you. By working together, following guidelines for our personal health and safety, and staying positive, we’ll get through this.
The Cook & Company Team
Below is a summary of the American Rescue Plan Act of 2021 (H.R. 1319) for individuals. The bill was signed into law on 3/11/2021.
Special information that may impact individuals who received unemployment in 2020:
For taxpayers who received unemployment in 2020 and have an Adjusted Gross Income of $150,000 or less, the first $10,200 of unemployment received is considered non-taxable. Adjusted Gross Income determination is made without including the unemployment received.
**Our firm will provide future guidance to our clients that may be impacted.**
**This is only in effect for 2020. This does not impact your unemployment benefits received in 2021.**
Individual tax provisions in 2021
Many of these tax provisions are for Tax Year 2021 only. Continuation of these items will require congress to extend these provisions.
2021 Recovery Rebates
As many individuals received Economic Impact Payments (stimulus checks) in 2020 and early 2021, another round of rebates will be distributed in the coming weeks. The eligible credit is $1,400 for single taxpayers and $2,800 for married filing joint filers. A credit of $1,400 is also available for eligible dependents. The income limits and phaseout for the recovery rebates will be determined by your 2020 tax return (if it has been filed), otherwise will default to income on your 2019 tax return.
There are a number of online calculators that can be used to determine the projected amount of the third stimulus check. If your 2020 return has been filed, you will need your Adjusted Gross Income amount, which can be found on line 11 of Form 1040. Otherwise, you will need your 2019 Adjusted Gross Income, which can be found on line 8b of Form 1040.
Here is a link to a calculator to calculate your recovery rebate: https://www.forbes.com/advisor/personal-finance/third-stimulus-check-calculator/
Child Tax Credit (currently in place for 2021 only)
The Child Tax Credit has been increased to $3,000 per child ($3,600 for certain children under 6). The child tax credit is now applicable to children under 18. The child tax credit in 2020 was $2,000 and applicable for children under 17.
Advance Payments of the Child Tax Credit
Along with changes increasing the Child Tax Credit, the Department of Treasury will also begin sending advance payments of the credit. This means you will get a monthly amount during the year instead of getting the full credit when doing your tax return.
**This means your traditional tax refund may be lower starting in 2021 or the amount you traditionally owe may be more than usual.**
**The IRS will send you a tax form reporting all advance payments you received. This form will be required to complete your return.**
**For children born during the tax year, you will not receive an Advance Payment in the first year, you will receive the credit with your tax return.**
Dependent Care Benefits (currently in place for 2021 only)
- The Dependent Care Credit has multiple changes in place for 2021.
- The calculation of the credit is now 50 percent of the eligible expenses.
- The calculation traditionally has been 35 percent of eligible expenses.
- The amount of eligible expenses is now $8,000 for one qualifying child or $16,000 for two or more qualifying children.
- The amount of eligible expenses was $3,000 for one qualifying child or $6,000 for two or more qualifying children.
- There is still an income phaseout for the credit. It was increased from starting to phase out at $15,000, to beginning to phase out at $125,000.
- Starting in 2021, the credit is now a refundable credit. The credit traditionally was only allowed if the taxpayer had sufficient tax liability. Starting in 2021, the amount in excess of the tax liability will be included in the tax refund.
**Example of how this impacts an individual. The credit now goes from a max of $1,050 for one qualifying child (35 percent of $3,000) or $2,100 for two or more qualifying children (35 percent of $6,000) to $4,000 for one qualifying child (50 percent of $8,000) and $8,000 (50 percent of $16,000).**
Employer Provided Dependent Care Benefits (currently in place for 2021 only)
Dependent care benefits offered through an employer (reducing taxable income) have been increased for 2021. The amount of dependent care benefits that can be excluded has been increased from $5,000 to $10,500 per family.
Earned Income Tax Credit Expanded (currently in place for 2021 only)
The Earned Income Tax Credit has been expanded to most individuals 19 and over instead of 25 and older and will no longer have a maximum age of 65.
The credit income limits and phaseout have also been increased. The credit has also been expanded to certain married filing separate filers.
Premium Tax Credit
The premium tax credit increases credits for individuals eligible for health insurance premium assistance under current law and provides credits for taxpayers with income below 400% of the federal poverty line. It removes restrictions for taxpayers receiving unemployment compensation anytime in 2021. Under these changes, no additional income tax is imposed for tax years beginning in 2020 where the advance credit payments exceed the taxpayer’s Premium Tax Credit (PTC).
Student Loan Forgiveness (for Tax Years 2021-2025 currently)
Certain student loan debt forgiven between in 2021 through 2025 can be excluded from gross income. Currently, the amount of student loan forgiveness is considered taxable income.
Below is a summary of the American Rescue Plan Act of 2021 (H.R. 1319) for businesses. The bill was signed into law on 3/11/2021.
Grants for restaurants and other food businesses (Restaurant Revitalization Grants)
Grants will be available in the near future for restaurants and other food and beverage businesses that are impacted by current economic conditions. These grants will be processed through the Small Business Administration (SBA).
Extension and expansion of the Families First Coronavirus Response Act (FFCRA) Sick/Leave Pay
- The period that is available to claim the FFCRA Sick/Leave Pay has been extended from March 31, 2021 to September 30, 2021.
- The credit can now include the employer’s share of Social Security and Medicare Tax.
- The amount of wages an employer may claim per employee increased from $10,000 to $12,000.
- The sick/leave time now includes a provision to allow employees to obtain the COVID-19 vaccine.
Extension and adjustments to the Employee Retention Credit (ERC)
- The Employee Retention Credit has been extended from June 30, 2021 to December 31, 2021.
- Clarifies that the ERC is not available for wages paid with PPP or PPP round two funds, shuttered venue assistance, or the Restaurant Revitalization Grants.
Taxation clarification on Restaurant Revitalization Grants or EIDL Advance
HR 1319 clarifies that Restaurant Revitalization Grants and the EIDL Advance are generally excluded from gross income and other tax-related calculations.
Shuttered Venue Operators Grant (SVOG)
HR 1319 includes an additional $1.25 billion for the Shuttered Venue Operators Grant (SVOG) program. It also allows eligible entities that receive a first or second draw PPP loan after December 27, 2020 to receive a grant. Previously, receiving or having open applications for both programs had been prohibited. With the passage of the new law, it is possible for venue operators to receive both a PPP loan and an SVOG, as long as the amount of the SVOG is reduced by the amount of PPP funds approved. SVOG eligibility requirements can be found through the SBA’s website: https://www.sba.gov/sites/default/files/2021-03/SVOG%20Eligibility%20Requirements-508.pdf
Is your business eligible for the Employee Retention Credit?
Because the coronavirus has negatively affected so many businesses nationwide, a number of coronavirus payroll tax credits are available to help employers out. One option is the Employee Retention Credit (ERC).
The Employee Retention Credit is a CARES Act relief measure for businesses. It is a fully refundable tax credit that eligible employers who are able to keep employees on payroll can claim.
How much is the credit?
For 2020: The maximum ERC is $5,000 per employee.
For 2021: The maximum ERC is $7,000 per employee, per quarter for the first two quarters of the year, with a total maximum ERC of $14,000 per employee.
Who is eligible for the ERC?
Businesses are eligible if either of these two things happened in 2020:
- Your operations were fully or partially suspended due to a COVID-19-related governmental order, or
- You experienced a significant reduction in gross receipts for one or more quarters.
Businesses are eligible for the first quarter of 2021 if either of these three things happened:
- Your operations were fully or partially suspended due to a COVID-19-related governmental order, or
- First-quarter 2021 gross receipts fall by more than 20% compared to first-quarter 2019 gross receipts, or
- Fourth-quarter 2020 gross receipts fell by more than 20% compared to fourth-quarter 2019 gross receipts.
For 2020, employers with 100 or fewer full-time equivalent (FTE) employees during 2019 can claim the ERC on all wages paid to employees during the period in which the employer satisfied the shutdown test or the gross receipts test.
For 2021, the Act increases the small employer threshold from 100 to 500 FTE employees, meaning employers with up to 500 FTE employees in 2019 may claim the ERC for 2021 on wages paid for working or non-working periods.
Employers can now take advantage of the Paycheck Protection Program (PPP) and claim ERC. This part of the new law is retroactive, allowing PPP recipients to retroactively claim ERC. However, an employer that receives a PPP loan may not use those wages to qualify for the Employee Retention Credit, regardless of whether and when the loan is forgiven.
Due to these and other technicalities, we encourage you to contact our firm if you have questions on your eligibility.
Overview of Pandemic Relief Bill for individuals
Below is a summary of the stimulus relief for individuals that is part of the Consolidated Appropriations Act, 2021 (H.R. 133) which was signed into law on 12/27/2020.
Second round of stimulus checks/direct deposits
Stimulus payments should start being processed in the coming week(s). Stimulus payments are $600 for each individual ($1200 per couple) and $600 for children age 17 and under. The amount of the stimulus payment will start to phase out at incomes of $75,000 (Single), $112,500 (Head of household) and $150,000 (Married filing joint or surviving spouse).
There are a number of online calculators that can be used to determine the projected amount of the second stimulus check. You will need your 2019 Adjusted Gross Income, which can be found on line 8b of form 1040.
Here is a calculator from Forbes: https://www.forbes.com/advisor/personal-finance/second-stimulus-check-calculator-payments/
Enhanced unemployment benefits
Individuals on unemployment can receive an extra $300 per week for up to 11 weeks starting on December 26, 2020. The $300 is not retroactive and is good through March 14, 2021.
Earned Income Tax Credit changes for 2020 tax returns
Taxpayers that qualify for Earned Income Tax Credit, who have less earned income in 2020 than in 2019, can use their 2019 Earned Income to calculate their Earned Income Tax Credit.
Rollover of Flexible Spending Accounts (FSA)
The bill allows taxpayers to carry over amounts in their FSA to 2021 (from 2020), and then again into 2022 (from 2021). This covers both healthcare and dependent care FSAs.
Tax Year 2021 – Removal of Tuition and Fees Deduction
Starting in 2021, the Tuition and Fees Deduction has been eliminated. It has been replaced with a higher phase-out limit of the Lifetime Learning Credit. The new phase-out limits are $80,000 for single and $160,000 for joint returns.
Tax Year 2021 – Charitable deductions
Starting in Tax Year 2021, an individual who does not itemize deductions can also get an above-the-line deduction of $300 per return ($600 for a joint return) for cash donations. The suspension of cash donation limits was also extended through 2021.
Tax Year 2021 – Medical Expense deductions
Starting in 2021, to be able to claim medical expenses, the floor is officially 7.5%. This number has vacillated between 10% and 7.5%, but is now permanent at 7.5%.
Below is a summary of the stimulus relief for businesses that is part of the Consolidated Appropriations Act, 2021 (H.R. 133) which was signed into law on 12/27/2020.
Paycheck Protection Program second draw
Congress has created a PPP second draw available to smaller businesses that can show their business has been impacted by the pandemic. The second draw offers a similar package to the PPP offered out of the Cares Act earlier in 2020. There have been some changes and limitations put in place for the second draw including:
Company size is smaller. Instead of 500 or less employees as it was in the Cares Act, the employee limits are reduced to 300.
- Companies will have to show a 25% or more reduction in revenue for an individual quarter in 2020 compared to 2019. This requires comparing quarterly financials for each quarter of 2020 to each quarter in 2019.
- Businesses that have 20% or more ownership by Individuals or other entities based in China or Hong Kong are ineligible for the PPP second draw.
- Businesses that were created or organized in China or Hong Kong or have significant operations in those countries are not eligible.
- Businesses engaged in political or lobbying activities are not eligible. This includes political research, political advocacy and public policy strategy companies
- Additional ineligible businesses include:
- Life insurance companies
- Lending institutions
- Passive businesses owned by developers and landlords that do not actively use or occupy the assets
- Businesses located outside the United States
- Pyramid sale distribution businesses
- Businesses with more than one-third of gross revenue from gambling
- Businesses involved in a federal illegal activity
- Private clubs that limit membership to members for any reason other than capacity
- Government-owned businesses (does not include businesses controlled by a Native American tribe)
- Businesses that have an associate that is incarcerated, on parole or probation, or has been indicted for a felony or crime or moral turpitude
- Businesses that present live performances that are sexual in nature or sell products, services or have displays that are sexual in nature
- Businesses that have defaulted on a federal loan or federally assisted financing
Calculation of loan: The loan calculation follows the same rules as it did under the Cares Act with the exception that you can choose to use payroll amounts from the calendar year 2019 or the 12 months immediately preceding the date of the loan application.
Hotels and restaurants
Borrowers with North American Industry Classification System (NAICS) codes starting with 72 (hotels and restaurants) can get up to three and one-half (3.5) times their monthly average payroll costs.
Deductibility of expenses forgiven under the PPP and PPP second draw
Under original guidance from the Department of Treasury, the expenses paid with funds from the PPP loans were not deductible. The passing of this new bill has clarified that the treatment of the forgiveness will be as tax-exempt income. The forgiveness amount will not add-back the forgiveness as income or result in any reduction in expenses paid.
PPP simplified forgiveness application
A simplified application (one-page) will be released for loans of $150,000 or less in the coming weeks. Currently, applications exist for loans of $50,000 or less only. We will provide more details when the Department of Treasury releases the new application.
Tax deduction for 100 percent of business meals starting January 1, 2021
Currently, a business may take a tax deduction of 50% of business meals. Starting on January 1, 2021 and ending on December 31, 2022, all meals from restaurants will be 100% tax deductible.
Employee Retention Tax Credit extension and changes
Changes have been made to the Employee Retention Tax Credit including:
The credit is now allowed for wages paid through July 1, 2021. The original credit was due to expire on January 1, 2021.
The credit limit of $10,000 wages per employee has been changed to $10,000 per employee per quarter for 2021.
The credit limitation has been changed from 50% of qualified wages to 70% of qualified wages in 2021.
The gross receipts test has been changed to comparing the respective quarter in the current year.
The credit can also be taken if the payroll for the Employee Retention Tax Credit was not paid with forgiven (or forgivable) PPP funds.
For 2020, the credit calculation has not changed, only that it can be taken in conjunction with the PPP from the above bullet.
The changes to this tax credit are retroactive to the original Cares Act date of March 12, 2020.
Extension of Families First Coronavirus Response Act sick and family leave
The FFCRA sick and leave pay has been extended for qualified employees until March 31, 2021. The original Act was set to expire on December 31, 2020. All the same requirements will remain in place with the exception of date extension.
On November 18, 2020, the Department of Treasury issued more clarifications regarding the deductibility of expenses paid with PPP funds that are ultimately forgiven. The Revenue Ruling 2020-27 clarified that expenses will be non-deductible for Tax Year 2020 as long as the taxpayer “reasonably expects” that there will be debt forgiveness on the loan—even if forgiveness isn’t determined by the end of the year.
Many PPP lenders are now accepting applications for forgiveness. Please note that Congress may still make changes to this ruling as senate finance committee chairman Chuck Grassley (R-IA) and ranking member Ron Wyden (D-OR) issued a bi-partisan statement calling on the Department of Treasury to reconsider this position.
Remember, we are here to help! Forgiveness application submission is not a simple task. We can assist you to ensure your application is accurate and that you put yourself in the best position to gain maximum loan forgiveness.
On October 8, 2020, the Department of Treasury introduced an easier Loan Forgiveness Application for businesses that received PPP loans of $50,000 or less. This new application does not require any calculations for Loan Forgiveness and borrowers are not subject to any wage or FTE reductions. All relevant payroll reports and records of other qualified expenses should still be kept on file, as they could be requested in the future by the SBA.
Links are provided below to access these new, simpler forms. Our firm is here to help if you have questions about your PPP Loan Forgiveness.
Link to application: https://www.sba.gov/document/sba-form-3508s-ppp-loan-forgiveness-form-3508s
Link to instructions: https://www.sba.gov/document/support-ppp-loan-forgiveness-form-3508s-instructions
Beginning August 10, 2020, the SBA will begin accepting PPP loan forgiveness applications. While August 10 is the date set by the SBA, it is important to check with your lender, as many lenders may have set their own unique date for accepting forgiveness applications.
It’s also important to note that there is pending legislation in Washington that could allow automatic forgiveness of loans that are $150,000 or less. At this time, there is no guarantee the legislation will pass.
We will continue to monitor the situation and work to keep clients updated.
As promised, we have kept a close watch on new legislation that affects the Paycheck Protection Program (PPP) and have an important update for you.
Recent legislation (titled HR7010) has passed, offering adjustments to PPP loans—particularly regarding forgiveness calculations. Key changes are as follows:
- Covered time period extended—The period of time to use loan money has been extended from 8 to 24 weeks. This means that you have more time to apply funds to qualified expenses that maximize loan forgiveness.
- Social Security payments deferred—Originally under the Cares Act, employers who received the PPP Loan could not also defer employer social security tax payments. HR7010 adjusted this. Now, any employer with social security payments due between March 27, 2020 and December 31, 2020 can pay half of the amount due by the end of 2021 and the remainder by the end of 2022.
- Loan payment deferral extended—The original 6-month deferral for repayment of PPP loans has been extended to 10 months. Payments are only required on the amount of the loan that is not forgiven.
- Payroll threshold adjusted—Originally, the Department of Treasury and the SBA determined that 75 percent of a PPP loan had to be used for payroll in order for the loan to be forgiven. The 75 percent threshold has been adjusted to 60 percent. Loan forgiveness will only be granted if 60 percent of funds are used for payroll. This could still be subject to change; we will keep you posted.
- Safe harbor date extended—The original Cares Act included safe harbor exceptions to restore or attempt to restore full-time employees and any pay reductions by June 30, 2020. These exceptions still exist, but the date to restore has been adjusted to December 31, 2020.
- Loan term date extended—All new PPP loans effective after the passing of HR7010 will have a five-year term. Businesses that received a loan prior to the new legislation can adjust the loan term from two to five years. Individuals will need to work with their lender to amend loan terms.
We hope this update helps. Again, we will continue to closely monitor new legislation and inform you on the key changes that may affect your PPP loan.
IRS extends additional federal tax deadlines to cover individuals, trusts, estates, corporations and others
Last month, the IRS announced that taxpayers have until July 15, 2020 to file and pay federal income taxes (originally due on April 15, 2020). On April 9, 2020, the IRS expanded this tax relief effort to additional returns, tax payments and other actions.
As a result, extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020 and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extension. This means that anyone, including Americans who live and work abroad, can now wait until July 15, 2020 to file their 2019 federal income tax return and pay due taxes.
Estimated tax payments
Additionally, any individual or corporation with a quarterly estimated tax payment due on or after April 1, 2020 and before July 15, 2020, can wait until July 15, 2020 to make a payment—without penalty. This means that estimates normally due June 15, 2020 are now due one month later on July 15, 2020.
Extension of time to file beyond July 15
Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to October 15, 2020.
Note: This is an extension to file the tax return. It is not an extension to pay taxes owed. Taxes owed are still due by the July 15, 2020 deadline.
The following represents a summary of the recently signed into law CARES Act—also referred to as the Stimulus Package. Specifically, we are providing a summary of the Paycheck Protection Program.
Title 1 of the CARES Act, entitled “Keeping American Workers Paid and Employed Act,” provides relief for small businesses and their employees who are adversely affected by the COVID-19 outbreak. The key provision in this Act is the Paycheck Protection Program—an emergency lending facility to provide small business loans on favorable terms to borrowers impacted by the current economic state.
PAYCHECK PROTECTION PROGRAM – KEY POINTS
The following offers highlights of the Paycheck Protection Program that small business owners need to be aware of and consider as they move forward:
Available to businesses with 500 employees or less.
Loan period ranges from February 15, 2020 through June 30, 2020.
Loan amount equates to 2.5 times average monthly payroll expenses for 12 months prior to the loan origination—up to $10 million.
Loan interest is 1.0% (Treasury changed from 0.5% on 04/02/2020.)
Loan duration is 2 years. (Treasury changed from a max of 10 years on 03/31/2020.)
Loan forgiveness is available—A borrower is eligible for loan forgiveness equal to the amount spent on the following items, during the eight-week period beginning on the loan origination date:
- Payroll costs
- Mortgage interest incurred in the ordinary course of business
- Rent paid based on a leasing agreement
- Payments for utilities—including electricity, gas, water, transportation, telephone or internet
- Additional wages paid to tipped employees
Note: The loan forgiveness amount can be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.
Note: To have loan amounts fully forgiven, at least 75% of forgiveness amount calculated must be for payroll costs. (This is a NEW requirement from the Treasury as of 03/31/2020.)
- Collateral is not required to secure the loan.
- No personal guarantee is required to secure the loan.
- Loan repayments are automatically deferred for six months and up to one year. This includes interest, fees and loan principal.
- Payment Protection Program loans are applied for through approved banks. The SBA may administer some loans based on viability.
- For businesses that have been denied SBA loans previously, lending requirements are more lenient.
CARES ACT – ADDITIONAL KEY POINTS
Employee Retention Payroll Tax Credit
The Employee Retention Payroll Tax Credit cannot be used in conjunction with the Payroll Protection Program or any other loan where payroll costs are forgiven.
Employee retention credit is equal to 50% of qualified wages with a cap of $10,000 wages. Maximum credit per employee is $5000.
The employer’s gross receipts must be 50% or less than the same calendar quarter in 2019 to qualify.
- For employers with 100 or less employees, qualified wages are defined as wages paid for all employees during the period—whether they were able to work or not. For employers with 100 or more employees, qualified wages are defined as wages paid to employees not providing services.
Deferral of Employer Social Security Taxes
The deferral of employer social security taxes cannot be used in conjunction with the Payroll Protection Program. This allows an employer to defer their portion of Social Security taxes from March 27, 2020 to January 1, 2021. 50% is due by December 31, 2021 and the remainder by December 31, 2022.
This allows employers to expense qualified improvement property under the section 168 bonus depreciation rules
The following represents a summary of the recently signed into law CARES Act—also referred to as the Stimulus Package.
RECOVERY CHECKS – KEY POINTS
Recovery check distribution amounts—Single taxpayers will receive $1,200 and joint taxpayers will receive $2,400. There is an additional $500 for each qualifying child.
The recovery check is considered a credit for 2020, but paid in advance.
The amount is reduced (but not below zero) by 5% of each dollar a person’s adjusted gross income (AGI) exceeds. Consider the following:
- Married filing joint: $150,000 (AGI over $198,000 does not qualify)
- Head of household: $112,500 (AGI over $146,500 does not qualify)
- Single: $75,000 (AGI over $99,000 does not qualify)
Consider the following example:
- A married couple with no children has an AGI of $190,000.
- $190,000 is $40,000 above the $150,000 amount shown above.
- The couple’s check is reduced by 5% of $40,000, which is $2000.
- Therefore, they would receive a check for $400. (i.e., $2400 - $2000 = $400)
Other key details for recovery check eligibility include:
- Nonresident aliens are not eligible for the rebate.
- If a taxpayer has an outstanding debt (which the IRS would typically offset a refund by paying that debt), recovery dollars will not be used to offset that debt.
- Amount will be direct deposited into the account on the last filed return. Every taxpayer will receive a letter indicating their recovery check was dispersed. If the letter is not received, there will be a specific phone number to call to have the check re-issued.
- AGI will be accessed from 2019 returns if filed at the time of determination. Otherwise, 2018 returns will be used. Taxpayers who have not filed a return will not receive a check unless they did not file because they only have SSA-1099 or RRB-1099 (social security). The Treasury Department will review those forms for 2019 and issue the appropriate amount via check.
UNEMPLOYMENT – KEY POINTS
Any employee who was furloughed or part of a layoff is eligible for state unemployment. Details are as follows:
- Unemployment amount via the state typically ranges from 30-50% of the standard wage, depending on the state.
- The amount a person will receive for unemployment over four months will be the amount the state would already provide, but increased by $600 per week through July 31, 2020. For example, if a person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first.
- If an employee is already unemployed due to COVID-19, the $600 weekly additional payment will be paid retroactively.
- Self employed individuals, independent contractors and gig workers are eligible for unemployment under this program.
RETIREMENT DISTRIBUTIONS – KEY POINTS
Ability to withdraw up to $100,000 retirement in 2020 for COVID-19-related purposes without 10% penalty—The distribution is taxable over a 3-year period unless electing to pay it back within 3 years. This essentially equates to a loan unless it is not paid back within the 3-year timeframe. This rule applies to individuals:
- Diagnosed with COVID-19
- Who have family (spouse or dependent) who have been diagnosed with COVID-19
- Who have adverse financial consequences in relation to COVID-19
- Who include the distribution in taxable income (unless they elect the 3-year payback)
Waived required minimum distributions (RMD) from individual retirement accounts—The required minimum distribution for 2020 has been waived.
This also applies to retirees who turned 70 1/2 in 2019 and are required to take their RMD by 4/1/20. If the retiree that turned 70 1/2 in 2019 still intends to take their RMD, this must happen by April 1, 2020—otherwise, the same penalty for late withdrawal will be applied.
CHARITABLE CONTRIBUTIONS - KEY POINTS
Above-the-line charitable contribution—For tax year 2020, if a taxpayer does not itemize deductions, they can deduct up to $300 in addition to standard deduction for cash charitable contributions (no stock contributions).
Charitable contribution limitation by AGI—The 60% adjusted gross income limitation has been removed for 2020 (other than from donor advised funds).
In an effort to provide continued clarity around changes to tax law, we are offering this update to our previous tax announcements. As such, we have removed a few of our previous tax update posts.
Below, you will find a list of frequently asked questions in reference to the Internal Revenue Service’s (IRS) Notice 2020-18 (PDF). In this Notice, the Treasury Department and the IRS announced special Federal income tax return filing and payment relief in response to the ongoing COVID-19 emergency.
You can review the IRS page for additional information here:
Frequently Asked Questions
Question 1: Who is eligible for relief under the Notice?
Answer: Any person with a Federal income tax return or payment due on April 15, 2020 is eligible for relief under the Notice. “Person” includes any type of taxpayer such as an individual, a trust, an estate, a corporation or any type of unincorporated business entity. The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income)—regardless of the amount owed. The return or payment must be due on April 15, 2020—this relief does not apply to Federal income tax returns and payments due on any other date.
Question 2: Do I have to actually be sick, quarantined or have any other impact from COVID-19 to qualify for payment relief?
Answer: No, you do not have to be sick, quarantined or have any other impact from COVID-19 to qualify for relief. You only need to have a Federal income tax return or payment due on April 15, 2020 as described above.
Question 3: I am a fiscal year filer. My Federal income tax return for fiscal year 2019 is due on April 15, 2020. Am I an “Affected Taxpayer” eligible for relief under the Notice?
Answer 3: Yes, the relief provided in the Notice applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020. If your Federal income tax return for your fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, your due date is postponed to July 15, 2020.
Question 4: Does this relief apply to state tax liabilities?
Answer: No, this relief applies only to Federal income tax payments. State filing and payment deadlines vary and are not always the same as the Federal filing and payment deadline. We urge you to check with your state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.
Question 5: I haven’t filed my 2019 income tax return yet (that would have been due on April 15), but I expect to file it by July 15. What do I need to do?
Answer: Nothing, except file and pay any tax due with your return by July 15. You don’t need to file any additional forms or call the IRS to qualify for this automatic Federal tax filing and payment relief. If you expect a refund, you are encouraged to file your return as soon as you can so that you can receive your refund. Filing electronically with direct deposit is the quickest way to get refunds. If you need more time beyond July 15 to file your return, request an automatic extension of time to file as described next.
Question 6: What if I am unable to file my 2019 income tax return (that would have been due on April 15) by July 15, 2020?
Answer: If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15, 2020 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional, tax software or using the Free File link on IRS.gov. Businesses, including trusts, must file Form 7004.
You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.
Question 7: I already filed my 2019 income tax return (that would have been due on April 15) and I owe taxes, but I haven’t paid yet. What do I need to do to avoid interest and penalties?
Answer: To avoid interest and penalties, pay your taxes in full by July 15, 2020. If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found on line 23. If you filed Form 1040-NR, the tax payment amount can be found on line 75. For a corporation filing Form 1120, the tax payment amount can be found on line 35.
Interest and penalties will begin to be charged after July 15 for any amount remaining unpaid by that date.
Question 8: I already filed my 2019 income tax return that would have been due on April 15 and scheduled a payment of taxes for April 15, 2020. Will this payment be automatically rescheduled to July 15, 2020?
Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing, the payment will be made on the date you chose. Here is information on how to cancel and reschedule your payment:
- If you scheduled a payment through IRS Direct Pay, you can use your confirmation number from the payment to access the “Look Up a Payment” feature. You can modify or cancel a scheduled payment until two business days before the payment date. The email notification you received when you scheduled the payment will contain the confirmation number.
- If you scheduled a payment through the Electronic Federal Tax Payment System (EFTPS), click on “Payments” from the EFTPS home page, login, click “Cancel a Tax Payment” from the left menu and follow the instructions. You must do so at least two business days before the scheduled payment date.
- If you scheduled a payment as part of filing your tax return (authorizing an electronic funds withdrawal), you may revoke (cancel) your payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. You must call to make a payment cancellation request no later than 11:59 p.m. ET two business days prior to the scheduled payment date.
- If you scheduled a payment by credit card or debit card, contact the card processor to cancel the payment.
Question 9: The Notice postpones the deadline for first quarter 2020 estimated income tax payments due on April 15, 2020. What about second quarter estimated tax payments due on June 15? Have they been postponed as well?
Answer: No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.
Question 10: Does this relief provide me more time to contribute money to my IRA for 2019?
Answer: Yes. Contributions can be made to your IRA for a particular year at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A - Contributions to Individual Retirement Arrangements (IRAs).
Under the recently enacted Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury as a result of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.
We’ve highlighted the following key details of the Act for you here, but you can also learn more by visiting the COVID-19 disaster assistance page on SBA’s website.
- State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
- Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
- Loans can be used to cover accounts payable, debts, payroll and other bills.
- Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
- Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
- SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800.659. 2955 (TTY: 800.877.8339) or e-mail firstname.lastname@example.org.
The Coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.
If you have questions, be sure to reach out to us. Our entire team is here to support and guide you!
“The Families First Coronavirus Response Act” (FFCRA), which goes into effect April 2, 2020 and expires December 31, 2020, responds to the coronavirus outbreak by providing additional assistance in the areas of COVID-19 testing, sick leave, food assistance, and more. We’ve compiled key details of FFCRA that we believe you need to know.
In summary, the Act:
- Requires private insurance plans to provide free COVID-19 testing
- Requires employers to provide emergency paid sick leave to workers affected by COVID-19 and expands family and medical leave.
- Offers increased funding for state unemployment insurance, food stamp and nutritional programs.
More specifically, here’s what The Families First Coronavirus Response Act means for both business owners and employees in the areas of sick leave and expanded family and medical leave.
- Employees are eligible for up to two weeks of sick leave (full pay for self, 2/3 pay for family care) for illness, quarantine or school closures.
- Employees are eligible for up to 12 weeks of FMLA leave for school closures (10 days unpaid and then up to 10 weeks at 2/3 pay).
- FMLA expansion covers:
- Employers with fewer than 500 employees
- Employees who have been employed for at least 30 calendar days (some exclusions may apply)
- Employees who must care for children under the age of 18 in the event of school and place-of-care closures or if care provider is unavailable due to a public health emergency with respect to COVID-19.
- Emergency paid sick leave covers:
- Employers with fewer than 500 employees
- All employees no matter the length of employment (some exclusions may apply)
The Coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.
If you have questions, be sure to reach out to us. Our entire team is here to support and guide you!