Tax Newsletter – COVID-19 & CARES Act Guidance

 April 2nd, 2020    

April 2020 News: COVID-19 Legislation and Tax Implications 

This special newsletter provides some COVID-19 tax guidance regarding the new legislation that’s become law. This is what we currently know. We await more law changes and additional guidance on the provision thus far and how they will be implemented.  Most of us are trying to get through the 2020 Tax Season. Usually an election year is void of any significant legislation – 2020 will be a wild ride for more than one reason. Our goal is to keep you “in the know”.

We at Basics & Beyond wish you well and hope you endeavor to stay safe during this global pandemic. We’re gathering information you will need to keep you informed on the many changes we will be facing during the implementation of COVID-19 legislation. Don’t forget our new COVID-19 tax webinars which shed additional light on this evolving topic.

In This Issue

  • Key Provisions of H.R. 6201, The “Families First Coronavirus Response Act”
  • Coronavirus Aid, Relief and Economic Security (CARES) Act
  • July 15, 2020 Tax Filing Deadline
  • IRS Guidance
  • Coronavirus Tax Relief – IRS Webpage
  • IRS has Provided Applicable Federal Rate Tables for April 2020

Issue 1: H.R. 6201, The “Families First Coronavirus Response Act”

A summary of the act is provided, but we stress that how the act will be implemented and how we claim the credits, for that, guidance is needed. We will be monitoring, so check your monthly newsletter for updates.

The Act has seven major components and takes effect April 1, 2020, and effective until December 31, 2020. We will center on the three aspects which will impact your clients concerning tax. Family and Medical Leave Act Expansion.

  • Public Health Emergency Paid Sick Leave Act.
  • Coverage of Testing for COVID-19.
  • Enhanced unemployment insurance.
  • Food security initiatives, including:
  • Various waivers to ensure that children who normally receive free or reduced-fee lunches will continue to be fed even if the schools close and that low-income seniors also will continue to receive their meals; and
  • Increased SNAP program funding and the temporary waiver of certain of its work requirements.

The sections of the act provide new tax credits, including:

  • §7001. Payroll Credit for Required Paid Sick Leave.
  • §7002. Credit for Sick Leave for Certain Self-Employed Individuals.
  • §7003. Payroll Credit for Required Paid Family Leave.
  • §7004. Credit for Family Leave for Certain Self-Employed Individuals.
  • §7005. Special Rule Related to Tax on Employers.

The new law prohibits all group health plans, health-insurance issuers and individual health insurance plans from imposing any cost sharing requirements related to COVID-19. This would include deductibles, copayments and coinsurance.

Emergency Family and Medical Leave Expansion Act

The Emergency Family and Medical Leave Expansion Act would impose a new federal emergency paid leave program that requires employers to provide eligible employees with job-protected leave for those employees unable to work (or telework) to care for their son or daughter under 18 years old if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable due to COVID-19.

The Act would apply to any employer with fewer than 500 employees, but it also would give the Department of Labor authority to exempt small businesses with fewer than 50 employees.  More on this later.

The Act applies to any individual employed by the covered employer for at least 30 days before the first day of leave.

Emergency Leave Benefits: Eligible employees would have the right to take up to 12 weeks of job-protected leave due to the qualifying COVID-19-related reasons as stated.  The first 14 days of this leave could be unpaid.  However, an employee could elect to substitute accrued vacation leave, personal leave, or medical or sick leave for unpaid leave without any input from the employer. Any remaining leave following the initial 10-day period would be paid at a rate of no less than two-thirds of the employee’s regular rate of pay, with a cap of $200 per day and $10,000 in the aggregate.

Emergency Paid Sick Leave

Full-time employees are eligible for up to 80 hours of emergency paid sick leave, while part-time employees are eligible based on the number of hours they would normally work in a two-week period. The provision is applicable regardless of duration of employment and employers cannot require employees to use other sick time before the Emergency Paid Sick Leave.

The criteria are as follows:

  • The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19; Do not over think this issue, do they have the virus – this is not open ended
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  • The employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is caring for the employee’s son or daughter 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; or
  • The employee is experiencing any other substantially similar condition.

Employees are encouraged to telework. If an employee can telework, they should be able to do so to reduce the need for sick leave.

The Following Information Provides Additional Guidance Released by the Department of Labor concerning both the Emergency Family and Medical Leave Expansion and the Emergency Paid Sick Leave Act.

How does an employer I know whether an employee has “been employed for at least 30 calendar days by the employer” for purposes of expanded family and medical leave?

  • An employee is considered to have been employed by the employer for at least 30 calendar days if the employer had the employee on its payroll for the 30 calendar days immediately prior to the day leave would begin.
  • For example, if the employee wants to take leave on April 1, 2020, they will need to have been on the employer’s payroll as of March 2, 2020.
  • If the employee has been working for a company as a temporary employee, and the company subsequently hires them on a full-time basis, the employer may count any days the employee previously worked as a temporary employee toward this 30-day eligibility period.

Employers with less than 500 employees are required to provide emergency paid sick leave for employees unable to work due to specific qualifying circumstances. (special rules for employers with fewer than 50 employees – more on this later.)

As an employer, how do they know if the business is under the 500-employee threshold and therefore must provide paid sick leave or expanded family and medical leave?

The client has fewer than 500 employees if, at the time the employee’s leave is to be taken, they employ fewer than 500 full-time and part-time employees within the United States, which includes any State of the United States, the District of Columbia, or any Territory or possession of the United States. In making this determination, the client should include employees on leave; temporary employees who are jointly employed (regardless of whether the jointly-employed employees are maintained on only the client’s or another employer’s payroll); and day laborers supplied by a temporary agency (regardless of whether they are with a temporary agency or the client’s firm if there is a continuing employment relationship). Workers who are independent contractors under the Fair Labor Standards Act (FLSA), rather than employees, are not considered employees for purposes of the 500-employee threshold.

When Calculating Pay Due to Employees, Must Overtime Hours be Included?

Yes. The Emergency Family and Medical Leave Expansion Act requires the employer to pay an employee for hours the employee would have been normally scheduled to work even if that is more than 40 hours in a week.

However, the Emergency Paid Sick Leave Act requires that paid sick leave be paid only up to 80 hours over a two-week period.

John, an employee who is scheduled to work 50 hours a week may take 50 hours of paid sick leave in the first week and 30 hours of paid sick leave in the second week. In any event, the total number of hours paid under the Emergency Paid Sick Leave Act is capped at 80.

Please note that pay does not need to include a premium for overtime hours under either the Emergency Paid Sick Leave Act or the Emergency Family and Medical Leave Expansion Act.

How does the Employer Count Hours Worked by a Part-time Employee for Purposes of Paid Sick Leave or Expanded Family and Medical Leave?

A part-time employee is entitled to leave for his or her average number of work hours in a two-week period. Therefore, the employer calculates hours of leave based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, the employer may use a six-month average to calculate the average daily hours. Such a part-time employee may take paid sick leave for this number of hours per day for up to a two-week period, and may take expanded family and medical leave for the same number of hours per day up to ten weeks after that.

If this calculation cannot be made because the employee has not been employed for at least six months, use the number of hours that the employer and the employee agreed that the employee would work upon hiring. And if there is no such agreement, the employer may calculate the appropriate number of hours of leave based on the average hours per day the employee was scheduled to work over the entire term of his or her employment.

May the Employee take 80 Hours of Paid Sick Leave for a Self-quarantine and then Another Amount of Paid Sick Leave for Another Reason Provided under the Emergency Paid Sick Leave Act?

No. The employee may take up to two weeks—or ten days— (80 hours for a full-time employee, or for a part-time employee, the number of hours equal to the average number of hours that the employee works over a typical two-week period) of paid sick leave for any combination of qualifying reasons. However, the total number of hours for which they can receive paid sick leave is capped at 80 hours under the Emergency Paid Sick Leave Act.

If the Employee is Home with a Child Because his or her School or Place of Care is Closed, or the Child Care Provider is Unavailable, Can the Employee get Paid Sick Leave, Expanded Family and Medical Leave, or Both—How do the two Separate Acts Interact?

The employee may be eligible for both types of leave, but only for a total of twelve weeks of paid leave. The employee may take both paid sick leave and expanded family and medical leave to care for their child whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons.

The Emergency Paid Sick Leave Act provides for an initial two weeks of paid leave. This period covers the first ten workdays of expanded family and medical leave, which are otherwise unpaid under the Emergency and Family Medical Leave Expansion Act unless you elect to use existing vacation, personal, or medical or sick leave under your employer’s policy. After the first ten workdays have elapsed, the employee will receive 2/3 of their regular rate of pay for the hours they would have been scheduled to work in the subsequent ten weeks under the Emergency and Family Medical Leave Expansion Act.

Please note that an employee can only receive the additional ten weeks of expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act for leave to care for their child whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons.

What Does it Mean to be Unable to Work, Including Telework for COVID-19 Related Reasons?

An employee is unable to work if the employer has work for them and one of the COVID-19 qualifying reasons previously set forth in the FFCRA prevents them from being able to perform that work, either under normal circumstances at the normal worksite or by means of telework.

If an employer permits teleworking—for example, allows the employee to perform certain tasks or work a certain number of hours from home or at a location other than the normal workplace—and the employee is unable to perform those tasks or work the required hours because of one of the qualifying reasons for paid sick leave, then the employee is entitled to take paid sick leave.

If the employer allows it and if the employee is unable to telework their normal schedule of hours due to one of the qualifying reasons in the Emergency Paid Sick Leave Act, in that situation, the employer and the employee may agree that the employee may take paid sick leave intermittently while teleworking.

The employee may take intermittent leave in any increment, provided that both parties agree. For example, if the employee agrees on a 90-minute increment, they could telework from 1:00 PM to 2:30 PM, take leave from 2:30 PM to 4:00 PM, and then return to teleworking.

If Receiving Paid Sick Leave or Expanded Family and Medical Leave, Must the Employer Continue my Health Coverage?

If the employer provides group health coverage that the employee has elected, they are entitled to continued group health coverage during the expanded family and medical leave on the same terms as if the employee continued to work. The employer must maintain coverage during the expanded family and medical leave. The employee generally must continue to make any normal contributions to the cost of your health coverage.

If the employee does not return to work at the end of the expanded family and medical leave, the employee needs to check with the employer to determine whether they are eligible to keep health coverage on the same terms (including contribution rates). If the employee is no longer eligible, they be may be able to continue coverage under the

Worksite Closures Issues

If the Employer Closed the Worksite before April 1, 2020 or After April 1, 2020 (the effective date of the FFCRA), Can an Employee Still Get Paid Sick Leave or Expanded Family and Medical Leave?

  • If prior to the FFCRA’s effective date, the employer sent an employee home and stops paying them because it does not have work for them to do, they will not get paid sick leave or expanded family and medical leave but you may be eligible for unemployment insurance benefits. This is true whether the employer closes the worksite for lack of business or because it is required to close pursuant to a Federal, State, or local directive.
  • If the employer furloughs an employee because it does not have enough work or business for the employee is not entitled to then take paid sick leave or expanded family and medical leave.
  • If the employer closes the worksite, even for a short period of time, the employee is not entitled to take paid sick leave or expanded family and medical leave.
  • If the employer reduces work hours because it does not have work for the employee to perform, the employee may not use paid sick leave or expanded family and medical leave for the hours that they are no longer scheduled to work.

Less Than 50 Employees

The Act also applies to employees of companies with less than 50 employees that are not otherwise required to offer FMLA benefits.  The Secretary of Labor has the authority to issue regulations exempting businesses with fewer than 50 employees when these requirements would jeopardize the viability of the business.

If providing childcare-related paid sick leave and expanded family and medical leave at a business with fewer than 50 employees would jeopardize the viability of the business as a going concern, how does the client take advantage of the small business exemption?

To elect this small business exemption, the client should document why the business with fewer than 50 employees meets the criteria set forth by the Department, which will be addressed in more detail in forthcoming regulations. The client should not send any materials to the Department of Labor when seeking a small business exemption for paid sick leave and expanded family and medical leave.

Many of our client are small businesses which are suffering significant “shock” due to the COVID-19, especially restaurants and other small businesses who have been restricted in the services they provide.  The requirement to pay sick leave could create a hardship and ultimate business failure.

New Guidance: An employer, including a religious or nonprofit organization, with fewer than 50 employees (small business) is exempt from providing paid sick leave and expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern. A small business may claim this exemption if an authorized officer of the business has determined that:

  • The provision of paid sick leave or expanded family and medical leave would result in the small business’s expenses and financial obligations exceeding available business revenues and cause the small business to cease operating at a minimal capacity;
  • The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or
  • There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee or employees requesting paid sick leave or expanded family and medical leave, and these labor or services are needed for the small business to operate at a minimal capacity.

Employment Under Multi-Employer Bargaining Agreements

The law also provides for employees who work under a multiemployer collective agreement and whose employers pay into a multiemployer plan.

An employer signatory to a multiemployer collective bargaining agreement may, consistent with its bargaining obligations and its collective bargaining agreement, fulfill its obligations under this Act by making contributions to a multiemployer fund, plan, or program based on the hours of paid sick time each of its employees is entitled to under this Act while working under the multiemployer collective bargaining agreement, provided that the fund, plan, or program enables employees to secure pay from such fund, plan, or program based on hours they have worked under the multiemployer collective bargaining agreement and for the uses specified under § 5102(a).

Employees who work under a multiemployer collective bargaining agreement into which their employers make contributions as provided in subsection (a) may secure pay from such fund, plan, or program based on hours they have worked under the multiemployer collective bargaining agreement for the uses specified in § 5102(a).

The Duration of the Leave – Two Types of Pay

A full-time employee is eligible for 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.

  1. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
  2. has been advised by a health care provider to self-quarantine related to COVID-19.
  3. is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
  4. is caring for an individual subject to an order described in (1) or self-quarantine as described in (2).
  5. is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

——————————————————————————————————————————————————————

A full-time employee is eligible for up to 12 weeks of leave (two weeks of paid sick leave followed by up to 10 weeks of paid expanded family & medical leave) at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period. If they are caring for a child, whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19.

Calculation of Pay

For the first set of criteria includes the following COVID-19 conditions for the Calculation of Pay:

  • The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19.
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
  • The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.

Employers must pay at the regular rate, capped at $511 per day or $5,110 in aggregate.

For the second set of criteria they must meet the following:   

  • The employee is caring for an individual who is subject to a Federal, State, or local quarantine or isolation order related to COVID-19 or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19 or.
  • The employee is experiencing any other substantially similar condition.

This set allows pay to the employees taking leave at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).

Finally, the third set of criteria covers this instance.

Employers must pay at least 2/3 of the employee’s regular rate, capped at $200 per day or $2,000 in aggregate. Up to 10 weeks of qualifying leave can be counted towards the childcare leave credit.

  • The employee is caring for the employee’s son or daughter if the school or place of care or the childcare provider of such son or daughter is unavailable due to COVID-19 precautions.

Other provisions:

  • Employees are entitled to emergency paid sick leave regardless of how long the employee has been employed by the employer.
  • Employers with 25 or more employees must return employees to the same or equivalent position upon return to work (same as traditional FMLA).
  • Employers with fewer than 25 employees are generally excluded from this requirement if the position no longer exists due to an economic downturn or other circumstances caused by a public health emergency.
  • This exclusion is subject to the employer making reasonable attempts to return the employee to an equivalent position and requires the employer to make efforts to return the employee to work for up to a year following the employee’s leave.
  • Nothing in the Act shall diminish the rights or benefits that an employee is entitled to, under any:
    • Other Federal, State, or local law;
    • Collective Bargaining Agreement; or
    • Existing employer policy.
    • Or require financial or other reimbursement to an employee from an employer upon the employee’s separation from employment for paid sick time under the Act that has not been used by such employee.
    • 7001 of the Act – Payroll Credit for Required Paid Sick Leave

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns, Form 941 series, with the IRS.

Eligible employers who pay qualifying sick or childcare leave will be able to retain an amount of the payroll taxes (OASDB and RRTA) equal to the amount of qualifying sick and childcare leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld, the employee share of Social Security taxes, and the employer share of Social Security taxes with respect to all employees.

NOTE: Medicare is not part of the credit. An employer must still withhold and match Medicare Tax.

If there are not sufficient payroll taxes to cover the cost of qualified sick and childcare leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.

  • Employers may elect to not have the credit apply.
  • To prevent a double benefit, no tax deduction is allowed for the amount of the credit for the employer. The payroll expense of the credit not allowed as a deduction.
  • In addition, no credit is allowed with respect to wages for which a credit is allowed under § 45S – Credit for Paid Family and Medical Leave.
  • The credit allowed does not apply to the Government of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of those entities.
  • Employers in the U.S. territories may claim the credit by filing their quarterly Federal employment tax returns.

Qualified Health Plan Expenses

The credit allows an increased amount as it applies to the employer’s qualified health plan expenses that are properly allocable to the qualified sick leave wages. Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan, but only to the extent such amounts are excluded from the employees’ income as coverage under an accident or health plan.

The Secretary of the Treasury will issue regulations on how this aspect will apply. For now, the allocation is treated as properly made if it is made on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage – relative to the time periods of leave to which such wages relate.

The Secretary of the Treasury shall prescribe regulations or other guidance as may be necessary to carry out the purposes of these provision, including regulations or other guidance:

(1) to prevent the avoidance of the purposes of the limitations under this provision;

(2) to minimize compliance and record-keeping burdens under this provision;

(3) providing for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the credit under this provision;

(4) for recapturing the benefit of credits determined under this provision in cases where there is a subsequent adjustment to the credit; and

(5) to ensure that the wages taken into account under this provision conform with the paid sick time required to be provided under the Emergency Paid Sick Leave Act.

Self Employed Individuals 

Self-Employed Individuals are allowed a tax credit against their self-employment tax if they are impacted by any of the six triggering events, for as many as 50 days multiplied by the lesser of $200 or 67% of their average self-employment income paid under the EMFLEA.

For eligible self-employed individuals who must self-isolate, obtain a diagnosis, or comply with a self-isolation recommendation, the qualified sick leave equivalent amount is capped at the lesser of $511 per day or 67% of the average daily self-employment income for the taxable year per day. For eligible self-employed individuals caring for a family member or for a child whose school or place of care has been closed due to coronavirus, the qualified sick leave equivalent amount is capped at the lesser of $200 per day or the average daily self-employment income for the taxable year per day.

Eligible self-employed individuals are individuals who regularly carries on any trade or business as defined by §1402, and would be entitled to receive paid leave pursuant to the Emergency Family and Medical Leave Expansion Act if the individual was an employee of an employer (other than himself or herself).

The term “average daily self-employment income” means an amount equal to—

The net earnings from self-employment of the individual for the taxable year, divided by 260.

When calculating the qualified family leave equivalent amount, an eligible self-employed individual may only take into account those days that the individual is unable to work for reasons that would entitle the individual to receive paid leave pursuant to the Emergency Family and Medical Leave Expansion Act.

Penalties and Enforcement

Employers in violation of the first two weeks’ expanded family and medical leave or unlawful termination provisions of the FFCRA will be subject to the penalties and enforcement described in §§ 16 and 17 of the Fair Labor Standards Act. 29 U.S.C. 216; 217. Employers in violation of the provisions providing for up to an additional 10 weeks of expanded family and medical leave to care for a child whose school or place of care is closed (or child care provider is unavailable) are subject to the enforcement provisions of the Family and Medical Leave Act.

The Department will observe a temporary period of non-enforcement for the first 30 days after the Act takes effect, so long as the employer has acted reasonably and in good faith to comply with the Act.  For purposes of this non-enforcement position, “good faith” exists when violations are remedied and the employee is made whole as soon as practicable by the employer, the violations were not willful, and the Department receives a written commitment from the employer to comply with the Act in the future.

Issue 2: First Time in History We Have a July 15, 2020 Tax Filing Deadline – IR 2020-58

Some history, the filing deadline for individuals was March 1 in 1913 (the first year of a federal income tax), and was changed to March 15 in 1918 and again to April 15 in 1955. In addition, we have had occasions due to disaster where an extension of time to file has been granted.

The COVID-19 has caused the filing deadline to move to July 15, 2020.

IRS released Notice 2020-18, which restates and expands upon the payment deadline relief provided in Notice 2020-17.

The Secretary of the Treasury has determined that any person with a Federal income tax payment or a Federal income tax return due April 15, 2020, is affected by the COVID-19 emergency for purposes of the relief

The term “person” includes an individual, a trust, estate, partnership, association, company or corporation.

For an Affected Taxpayer, the due date for filing Federal income tax returns and making Federal income tax payments due April 15, 2020, is automatically postponed to July 15, 2020.

Affected Taxpayers do not have to file Forms 4868 or 7004.

Individual clients who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional. Businesses who need additional time must file Form 7004.

There is no limitation, the first notice set a limitation, on the amount of the payment that may be postponed. The relief is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) and Federal income tax returns due on April 15, 2020, for Tax Year 2019. Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, are automatically postponed to July 15, 2020, for the tax year 2020.

No extension is provided in this notice for the payment or deposit of any other type of Federal tax, or for the filing of any Federal information return. As a result of the postponement of the due date for filing Federal income tax returns and making Federal income tax payments from April 15, 2020, to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to pay the Federal income taxes postponed by this notice.

Interest, penalties, and additions to tax with respect to such postponed Federal income tax filings and payments will begin to accrue on July 16, 2020.

Estimated tax payments may be confusing to some clients. Generally, our dates for estimated tax payments are:

  • April 15
  • June 15
  • September 15 and
  • January 15 of the following year.

Question still remain concerning the June 15 payment. Can we assume that the deadline for our first payment is July 15, then September 15 and January 15, of 2021, and only 3 payments are required for the 2020 tax year?

NOTE:  The 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.

Individual Retirement Accounts (IRAs) and Workplace-based Retirement Plans 

Contributions can be made to an 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, the deadline for making contributions to an IRA for 2019 is also extended to July 15, 2020.

The Client Requested an Automatic Withdraw of Tax Due on April 15, 2020 – Can That be Changed?

 First the payment will not be automatically rescheduled to July 15. If the client does nothing, the payment will be made on the date chosen.  Here is information on how to cancel and reschedule your payment:

  • If the client scheduled a payment through IRS Direct Pay, they can use their confirmation number from the payment to access the Look Up a Payment feature, and modify or cancel a scheduled payment until two business days before the payment date. The email notification they received when they scheduled the payment will contain the confirmation number.
  • If the scheduled a payment through Electronic Federal Tax Payment System (EFTPS), click on Payments from the EFTPS home page, login, then click Cancel a Tax Payment from the left menu and follow the instructions. The client must do so at least two business days before the scheduled payment date.
  • If they scheduled a payment as part of filing the tax return (authorizing an electronic funds withdrawal), they may revoke (cancel) the payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. They 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 card payment

HSA’s and MSA’s

Contributions may be made to any HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing the return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, the client may make contributions to the HSA or Archer MSA for 2019 at any time up to July 15, 2020.

Non-Filers

Relief provided for filing Federal income tax returns applies only to Federal income tax returns for the 2019 taxable year. The Notice does not extend relief to any filings or payments for taxable year 2016.

Estimated Tax Payments for 2019

Relief does not change the estimated tax requirements or estimated tax penalty for 2019. Relief from the penalty may be available under the normal rules.

Forms Covered by the July 15, 2020 Deadline 

  • Form 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS
  • Form 1041, 1041-N, 1041-QFT
  • Form 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF
  • Form 8960
  • Form 8991

With respect to Form 990-T, if that Form is due to be filed on April 15, then it has been postponed to July 15 under the Notice. For taxpayers whose Form 990-T is due on May 15, that due date has not been postponed under the Notice.

With respect to returns due on March 16, 2020, which include Form 1065, Form 1065-B, Form 1066, and Form 1120-S for calendar year taxpayers, the filing of those returns has not been postponed.

Relief provided 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 the Federal income tax return for a fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, the due date is postponed to July 15, 2020.

Clients who have filing or payment due dates other than April 15 have not been granted relief at this time.

High Deductible Health Plans Can Cover Coronavirus Costs IR 2020-15

High-deductible health plans (HDHPs) can pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their HAS status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA).

Health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. In addition, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.  The notice applies only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan with specific questions about their own plan and what it covers should contact their plan.

Issue 2: IRS Closures

The National Association of Enrolled Agents is reporting that Bloomberg/BNA reported the state directives to shutter all non-essential businesses are forcing the closure of a number of IRS facilities, including campus operations in Fresno and Philadelphia. This follows actions to end walk-in services and otherwise reduce staffing by about 50% at mission-critical field operations, including campus operations in Kansas City, Ogden, and Austin. IRS Commissioner Chuck Rettig stressed the measures, designed to improve worker safety, were temporary and were not expected to affect return and refund processing.

Issue 3: Coronavirus Tax Relief – IRS Webpage

The IRS has established a special webpage focused on steps to help taxpayers, businesses and others affected by the coronavirus. This page will be updated as new information is available. Put COVID-19 into the IRS search engine to find the link to the page.

Issue 4: Coronavirus Aid, Relief and Economic Security (CARES) Act

Cares Rebates

The CARES Act provides for a flat rebate in the form of a credit against 2020 tax liability of eligible individuals of $1,200 per individual ($2,400 for joint filers). Plus $500 per qualifying child (essentially, a dependent child of the eligible individual who lives with the taxpayer and has not attained the age of 17).  The Act provides for an “advance rebate” in the form of a credit treated as a tax payment, up to the full amount, against 2019 tax liability (or 2018, if a client has not yet filed a 2019 return).

For the 2020 tax year – we will need to reconcile the rebate on the tax return – similar to what we currently do as it relates to Marketplace Insurance.

If an individual has not filed returns for either 2018 or 2019, the IRS will use certain other available information to determine eligibility for refund relief – checking income based on Social Security or other IRS information documents

A taxpayer is described as:

  • Having qualifying income of at least $2,500, or has—
  • Net income tax liability which is greater than zero, and
  • Gross income which is greater than the basic standard deduction
  • Includes earned income, social security benefits, pension income and any certain other forms compensation
  • Must have a Social Security Number and be legally within the U. S
  • Individuals who are in the country illegally will not get the rebate
  • The amount will not be less than $600 or $1200 in the case of MFJ

Adjusted Gross Income (AGI) will be used to determine the rebate amount.  The phase-out will be $5.00 for every one hundred dollars over the threshold. The amount of the credit begins to phase out for taxpayers with incomes above $75,000 ($112,500 for heads of household, and $150,000 for taxpayers filing joint returns).

The credit fully phases out for those with incomes exceeding $99,000 for individuals, $146,500 for heads of household with one child, and $198,000 for joint filers with no children. Under CARES Act, it appears that no income recognition and no provisions for repayment apply – but IRS guidance on this is needed to clarify

Retirement Funds – Special Rules

Provides qualified individuals with up to $100,000 in distributions from their eligible employer retirement plan for certain eligible COVID-related purposes without incurring the 10% early withdrawal penalty. The distributed amount may be repaid over three years and any increase to income due to this distribution is prorated over three years.

Increase the limit for loans from certain retirement accounts from $50,000 to $100,000.

In addition, single-employer plan funding deadlines are delayed.

Clients directly affected by Covid-19 would not be subject to the 10% early withdrawal penalty on amounts distributed from a qualified retirement account, up to $100,000.  Additionally, these types of disbursements are typically subject to income tax when taken out before age 59 ½. In addition, and the repayment date of certain outstanding loans is delayed under these provisions – additional guidance will be needed

The law allows a temporary waiver of required minimum distributions for:

IRAs, 401(k), 403(b), and certain 457(b) and other defined contribution plans for the 2020 calendar year

This provision applies to all taxpayers who have required minimum distributions, without means testing or a requirement that the taxpayer had to have been affected by COVID-19.

A “coronavirus-related distribution” is a distribution made during 2020:

  • To an individual who is diagnosed with SRS-COV-2 or COVID-19 by a test approved by the CDC.
  • Whose spouse or dependent is diagnosed with one of the two diseases, or
  • Whom experiences adverse financial consequences as a result of being quarantined, furloughed or laid off or having work hours reduced, or being unable to work due to lack of childcare.

Charitable Contributions

Up to $300 of cash charitable contributions made during 2020 may be deducted “above the line” to arrive at adjusted gross income (AGI) without regard to whether the taxpayer itemizes deductions. For individuals who itemize, the 50% of AGI limitation is suspended for 2020 for cash contributions.

The deductions listed above are not available for contributions to donor-advised funds or to certain organizations supporting other non-profits.

For corporations, the 10% of AGI limitation is increased to 25% and increases the limitation on deductions for contributions of food inventory from 15% to 25%. The excess can be carried over for five years.

Student Loans

Payments made by an employer before January 1, 2021 for an employee’s principal or interest on qualified educational loans may be excluded from income up to the maximum exclusion amount of $5,250.  Payments due on federally held student loans are suspended and interest will not accrue through September 30, 2020.  All involuntary collections relating to student loans are also suspended, including garnishment of wages and reductions of tax refunds and other Federal benefits

Employee Retention Credit

  • The CARES Act generally defines “qualified wages” as “wages” as defined in §3121(a) and “compensation” as defined in §3231(e).
  • The CARES Act also notes that “qualified health plan expenses” are also generally deemed to be “wages” for purposes of computing the employee retention payroll tax credit.
  • Even if amounts constitute “wages” under the CARES Act, whether such wages are “qualified wages” depend on how many employees are employed by an employer.
  • Provides eligible employers a refundable credit against applicable employment taxes for each calendar quarter for 50 % of qualified wages paid to employees.
  • This section only applies to wages paid after March 12, 2020 and before January 1, 2021.
  • Employers are eligible for this credit if the employer’s operations were fully or partially suspended by a governmental authority due to COVID-19 or if gross receipts are less than 50 % of gross receipts for the same calendar quarter in the prior year
  • If an eligible employer has 100 or fewer full-time employees, all employee wages are qualified wages.

For employers with 100 or fewer employees:

  • Employer required to fully or partially suspend its trade or business
    • “Qualified wages” generally include those wages paid to all employees during the period in which the employer is required to fully or partially suspend its business (whether or not an employee is able to provide services because the employer is required to fully or partially suspend its business)
  • Employer experienced a significant decline in gross receipts
  • “Qualified wages” generally include those wages paid to all employees during the period in which the employer is experiencing a significant decline in gross receipts (whether or not an employee is able to provide services because the employer experienced a significant decline in gross receipts)
  • The amount of qualified wages for any employee for all calendar quarters shall not exceed $10,000, which includes qualified health plan expenses allocable to such wages
  • Employers receiving a covered loan under § 7(a)(36) of the Small Business Act (as added by § 1102 of the Act) shall not be eligible for the credit under this provision

For employers with greater than 100 employees:

  • Employer required to fully or partially suspend its trade or business.
    • “Qualified wages” generally include those wages paid to an employee during the period in which the employee is not providing services because the employer is required to fully or partially suspend its business.
  • Employer experienced a significant decline in gross receipts.
    • “Qualified wages” generally include those wages paid to an employee during the period in which the employee is not providing services because the employer experienced a significant decline in gross receipts.

Deferral/Delay of Payroll Taxes for 2020

  • Delay of payment of employer social security payroll taxes (and 50% of self-employment taxes, which is the equivalent of the employer portion) from when the CARES Act is enacted to January 1, 2021.
  • 50% of this deferred amount is paid on December 31, 2021.
  • The remaining 50% is paid on December 31, 2022.

This means an employer that incurs its 6.2% share of Social Security tax in 2020 may:

1) defer payment of that tax until 2021 and 2020, but

2) potentially receive an immediate credit against those yet-to-be paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit.

Business Interest §163(j) Eased

 Under the TCJA, business interest expense deductions are generally limited to 30% of a company’s adjusted taxable income.

The CARES Act provides that:

  • The 30% limitation on business interest expense deductions is generally increased to 50% for any taxable year beginning in 2019 or 2020 and
  • A company can generally elect to use their 2019 adjusted taxable income (which is likely higher than their 2020 adjusted taxable income) for purposes of computing the business interest expense deduction for the 2020 taxable year.

Special rule for partnerships

  • Partners that are allocated excess business interest expense (EBIE) for tax years beginning in 2019 are able to deduct 50% of that EBIE in tax years beginning in 2020 and the remaining 50% of the 2019 EBIE is subject to the normal §163(j) rules.
  • This means it’s carried forward to tax years for which the partner is allocated sufficient excess taxable income (ETI) from the partnership.

Modifications for Net Operating Losses (NOLs)

The TCJA eliminated the prior two-year carryback of NOLs but provided an indefinite NOL carryforward period. The CARES Act now allows for a five-year carryback of NOLs arising in the 2018, 2019, and 2020 tax years. Businesses may amend or modify tax returns for years dating back to 2013 to take advantage of the expanded carryback.

The CARES Act modified certain loss limitations to permit sole proprietors and pass-through entities to use NOLs previously disallowed. In addition, NOLs incurred before January 1, 2021 can be used to fully offset income, without the 80% taxable income limitation under the TCJA. Changes to the NOL utilization rules allow for greater cash flow and liquidity.

Modification of Credits for Prior Year Minimum Tax Liability of Corporations

The TCJA repealed the alternative minimum tax (AMT) for corporations on tax years after 2017 but allowed for a partial refundable credit for any unused minimum tax credits through 2021. The CARES Act accelerates the recovery of the AMT credits, making them fully refundable in tax years 2018 and 2019.

Technical Amendments Regarding Qualified Improvement Property

Due to an error in drafting, the TCJA increased the period for deducting the cost of qualified improvement property, such as qualified leasehold, restaurant, and retail property improvements. As a result of the error known as the “retail glitch,” qualified improvement property depreciates over a 39-year period and does not qualify for bonus depreciation. The CARES Act includes the highly anticipated technical correction by defining qualified improvement property as 15-year property to be expensed immediately. 100% bonus depreciation now applies to qualified improvement property. We await guidance from IRS as to whether this is an automatic change of accounting method. We assume so, for now

Issue 5: IRS has Provided Applicable Federal Rate Tables for April 2020 – Rev Rul 2020-9

Table 1

Applicable Federal Rates (AFR) for April 2020

 

 

Period for Compounding

 

Annual

 

Semiannual

 

Quarterly

 

Monthly

 

Short-Term

 

AFR

 

0.91%

 

0.91%

 

0.91%

 

0.91%

 

110% AFR

 

1.00%

 

1.00%

 

1.00%

 

1.00%

 

120% AFR

 

1.09%

 

1.09%

 

1.09%

 

1.09%

 

130% AFR

 

1.18%

 

1.18%

 

1.18%

 

1.18%

 

  Mid-Term

 

AFR

 

0.99%

 

0.99%

 

0.99%

 

0.99%

 

110% AFR

 

1.09%

 

1.09%

 

1.09%

 

1.09%

 

120% AFR

 

1.19%

 

1.19%

 

1.19%

 

1.19%

 

130% AFR

 

1.29%

 

1.29%

 

1.29%

 

1.29%

 

150% AFR

 

1.50%

 

1.49%

 

1.49%

 

1.49%

 

175% AFR

 

1.74%

 

1.73%

 

1.73%

 

1.72%

 

Long-Term

 

AFR

 

1.44%

 

1.43%

 

1.43%

 

1.43%

 

110% AFR

 

1.58%

 

1.57%

 

1.57%

 

1.56%

 

120% AFR

 

1.73%

 

1.72%

 

1.72%

 

1.71%

 

130% AFR

 

1.87%

 

1.86%

 

1.86%

 

1.85%

 

Table 2

Adjusted AFR for April 2020

 

 

Period for Compounding

 

Annual

 

Semiannual

 

Quarterly

 

Monthly

 

Short-term adjusted AFR

 

0.69%

 

0.69%

 

0.69%

 

0.69%

 

Mid-term adjusted AFR

 

0.75%

 

0.75%

 

0.75%

 

0.75%

 

Long-term adjusted AFR

 

1.09%

 

1.09%

 

1.09%

 

1.09%

 

 Table 3

 Rates Under Section 382 for April 2020

Adjusted federal long-term rate for the current month

 

1.09%

 

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long- term rates for the current month and the prior two months.)

 

1.63%

 

 Table 4

Appropriate Percentages Under Sec. 42(b)(1) for April 2020

Note:  Under Sec. 42(b)(2), the applicable percentage for non-federally subsidized

new buildings placed in service after July 30, 2008, cannot be less than 9%.

 

Appropriate percentage for the 70% present value low-income housing credit

 

7.28%

 

Appropriate percentage for the 30% present value low-income housing credit

 

3.12%

 

Table 5

Rate Under Sec. 7520 for April 2020

 

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest

 

1.2%

 

 

 

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