Tax Day is now July 15, 2020, due to the coronavirus pandemic. This is not the only change you will see when it comes to taxes. In fact, COVID-19 has been the catalyst for several tax changes for individuals and small businesses.
Tax Filing and Payment Deferral
The IRS extended the deadline for filing 2019 returns for individuals and calendar-year C corporations from April 15, 2020, to July 15, 2020 (Notice 2020-18). Taxpayers do not have to file for an extension unless they need more time beyond the new filing date; in that case, they should use Form 4868 for individuals or Form 7004 for corporations.
As mentioned earlier, the April 15, 2020 payment deadline for income taxes was also extended to July 15, 2020 (Notice 2020- 17). This extension covers 2019 taxes that are still out- standing on April 15, as well as 2020 estimated taxes due on April 15. It does not apply to deposits of employment taxes, which continue to be due as scheduled.
Interest, additions to tax, and tax penalties will begin to accrue for unpaid income tax amounts beginning on July 16, 2020. Taxpayers may, however, request reasonable cause relief from the failure-to-pay penalty [Internal Revenue Code (IRC) section 6651] or the failure by corporate taxpayers to pay estimated taxes (IRC section 6655).
New Paid Leave and Tax Credits
The Families First Coronavirus Response Act (H.R. 6201), which was signed into law on March 18, 2020, creates new paid leave payments for employees and new tax credits for small employers.
There are two types of paid leave under the new law, both of which apply through 2020: Paid sick leave for employees and paid family leave for employees. Click here for more details about paid leave and the Families First Coronavirus Response Act.
The Families First Coronavirus Response Act grants a new tax credit to small employers to cover the now-required payments to employees who take time off under the new law’s emergency sick-leave and family-leave provisions.
- A small employer can collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments made by the employer pursuant to the Act. However, the credit only covers leave payments made during the period beginning on a date specified by the Secretary of the Treasury and ending Dec. 31, 2020. The beginning date will be within 15 days of the March 18 date the Act became law. The credit is increased to cover a portion of an employer’s qualified health-plan expenses that are allocable to emergency sick-leave and family-leave wages. The new credit is first used to offset the Social Security tax component of the employer’s federal payroll-tax bill. Any excess credit is refundable, meaning the government will issue a payment to the employer for the excess. The credit is not available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.
- Small-employer FICA tax relief: Sick-leave and family-leave payments mandated by the Act are exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that normally applies to wages. Employers must pay the 1.45% Medicare tax component of the federal payroll tax, but they can claim a credit for that outlay.
- Comparable tax credits for self-employed individuals: If you are a self-employed individual who is affected by the coronavirus emergency, the Act allows you to claim a refundable credit against your federal income-tax bill, including the self-employment tax hit. If the credit exceeds your bill, the government will issue you a payment for the excess.
- The credit equals: 1) 100% of the self-employed person’s sick-leave equivalent amount plus 2) 67% of the sick-leave equivalent amount for taking care of a sick family member or taking care of your child following the closing of the child’s school.
- The sick-leave equivalent amount equals the lesser of: 1) your average daily self-employment (SE) income or 2) $511 per day for up to 10 days (up to $5,110 in total) to care for yourself due to the coronavirus or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or your child following the closing of the child’s school due to the coronavirus.
- In addition, you could claim a coronavirus emergency family-leave credit for up to 50 days. The credit amount would equal the number of qualified family-leave days multiplied by the lesser of 1) $200 or 2) your average daily SE income. The maximum total family-leave credit would be $10,000 (50 days times $200 per day). These credits for self-employed individuals are only allowed for days during the period beginning on a date specified by the Secretary of the Treasury and ending on Dec. 31, 2020. The beginning date will be within 15 days of the March 18 date the Act became law.
- To properly claim the credits, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Your tax professional can help with that.
Keep in mind that the above discussion covers federal tax rules, but there may also be state rules to consider. Click herefor more details.
With the spread of the virus and the continued volatility in the marketplace, you will likely see additional tax changes from Congress and the IRS, so stay tuned. For more details, IRS has created a Coronavirus Tax Relief webpage (https://www.irs.gov/coronavirus) to provide updates on virus-related tax changes.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we understand that as a business owner, keeping up with accounting and taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.