The Families First Coronavirus Response Act requires small employers to provide limited paid-leave benefits for employees affected by coronavirus. Eligible businesses can use paid leave payments to employees as a credit against their payroll tax payments and can file for an accelerated refund of the credit that should be paid out in a few weeks, giving businesses access to much needed cash."
Auburn University tax expert Kerry Inger, associate professor in the School of Accountancy in the Harbert College of Business, explains how individuals and corporations can apply and benefit from the recently passed Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act.
Regarding the extension to July 15, what type of impact will this make for individuals and/or industry other than more time to file?
What is notable about the extension is that it also gives taxpayers additional time to pay their federal taxes. Normally, individuals receive an automatic six-month extension to file their tax return, but still need to pay an estimate of their tax due by April 15. The filing extension will reduce the stress of filing a tax return in the next few weeks. It will also give taxpayers more time to work with their accountant. The extension of the payment deadline is very helpful for taxpayers whose ability to pay on April 15 has declined due to job loss, portfolio declines and unexpected cash needs. The extension of time to pay relieves taxpayers from incurring penalties and interest through July 15.
In my home state, Alabama Governor Ivey issued an emergency order that extends the filing and payment deadlines for Alabama state income taxes (individual and corporate) through July 15.
As a result of the coronavirus, any thoughts on what type of impact individuals and/or corporations might see on our 2020 returns next spring?
The first wave of tax relief came in the Families First Coronavirus Response Act (Act), signed by President Trump on March 18. For small businesses (less than 500 employees) there are two new refundable payroll tax credits that will reimburse them for the cost of providing coronavirus-related leave to their employees.
The Families First Coronavirus Response Act requires small employers to provide limited paid-leave benefits for employees affected by coronavirus. Eligible businesses can use paid leave payments to employees as a credit against their payroll tax payments and can file for an accelerated refund of the credit that should be paid out in a few weeks, giving businesses access to much needed cash. This includes paid sick leave for employees that are unable to work because of coronavirus quarantine (both diagnosed or symptomatic) at the regular rate of pay up to $511 per day for 10 days.
It also includes paid leave for employees that are caring for someone with the virus or children whose school or child-care facility are closed at two-thirds of the regular rate up to $200 for 10 days. For example, from the IRS website, if an eligible business paid $5,000 in sick leave to an employee with coronavirus and was otherwise required to deposit $8,000 of payroll taxes, the business can use the $5,000 as a credit and only remit $3,000. If the sick leave had instead been $10,000, the business can file for an accelerated refund of the $2,000 excess in order to get the much needed cash faster. Sick and family leave payments are exempt from the employer side of social security tax. Employers and self-employed taxpayers can also defer paying the employer side of social security tax, with half due on Dec. 31, 2021, and the other half due on Dec. 31, 2022.
Are popular tax online filing agencies suffering as a result of the coronavirus and do you expect more people to attempt to file their own returns to save money?
Taxpayers with income below a certain threshold (up to $69,000 depending on age, filing status and state) can use the free online filing program through the IRS website. It may be that more taxpayers decide to use this service that were using TurboTax before. It is also possible taxpayers will have more time on their hands to be able to file their own tax return.
Would it be a good idea to file early if you are expecting a positive return on your taxes?
It is always a good idea to file as soon as possible if you are expecting a refund because it will expedite the receipt of your money. The IRS is currently encouraging taxpayers expecting a refund to go ahead and file and not wait until the new July 15 deadline.
How is the IRS handling the coronavirus?
The IRS is still focused on mission-critical operations, which includes processing returns and distributing refunds. “As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding—and your patience,” IRS Commissioner Chuck Rettig said. “I’m incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment. Working closely with our partners in the nation’s tax community, we will do everything in our power to help.” Many IRS offices are closed or on reduced capacity, with IRS employees that are able working from home. All person-to-person meetings are canceled. Due to the reduced number of employees, the IRS warns that there will be significant delays in speaking to an IRS employee over the phone and suggest trying to resolve issues on IRS.gov.
Is filing taxes three months later than the norm possibly detrimental to the federal budget, which presumably depends on our tax dollars and now must wait? I also understand that they'd be shelling out a few returns, so this might even out.
Of greater concern to the federal budget is the loss of tax revenue under the coronavirus relief acts. While federal stimulus is absolutely necessary, it will further increase the federal budget deficit.
Do you expect a corona-related tax credit next year for individuals or businesses that suffered as a result of the shutdowns?
The second wave of relief, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides significant tax relief for individuals and businesses. The most notable is the recovery rebate program that will provide immediate cash payments up to $1,200 per adult and $500 per child, with payments being phase-out as the taxpayer’s income increases, based on 2019 income or 2018 if the 2019 return has not yet been filed. The recovery rebate is actually a credit on the 2020 tax return and taxpayers will be required to calculate the credit based on their 2020 income, with an offset for the credit that was actually received.
The Act generally allows the penalty-free IRA distribution for those with coronavirus, caring for those with coronavirus, lacking childcare due to coronavirus or experiencing adverse financial conditions due to the coronavirus."
The CARES Act has other tax relief as follows. Eligible taxpayers can take out up to $100,000 from their IRA without penalty as long as the funds are re-contributed to the IRA with no contribution limitations within a three-year period. This essentially allows taxpayers to take an interest free loan from their IRA to use for current cash needs. The Act generally allows the penalty-free IRA distribution for those with coronavirus, caring for those with coronavirus, lacking childcare due to coronavirus or experiencing adverse financial conditions due to the coronavirus. The IRS will provide additional guidance on who is eligible under the general guidelines. The CARES Act also waives required 2020 minimum distribution requirements for certain IRA and retirement funds.
It has been nice to see people’s generosity toward others during this time, with many people donating to charities to help people that have been negatively impacted. The CARES Act also allows for an adjusted gross income/above the line deduction (i.e., not an itemized deduction that only creates a tax benefit if total itemized are greater than standard deduction) for up to $300 of charitable contributions. Normally charitable contribution deductions only benefit taxpayers that itemize deductions. Further, the Act removes income limitations on charitable contribution deductions. The CARES Act also provides a credit for the employer’s share of social security for businesses that shut down but continue to pay their employees. The CARES Act also allows businesses more flexibility to carry back losses and deduct interest than was allowed under the 2017 Tax Cuts and Jobs Act. The Act also allows employers to pay up to $5,250 in 2020 of an employee’s student loan obligation on a tax-free basis.
About Kerry Inger:
Kerry Inger is an associate professor who specializes in taxation in the School of Accountancy, Harbert College of Business, Auburn University. Her research focuses on the intersection of financial accounting and corporate taxation. Her work has been published in The Journal of the American Taxation Association, The Journal of Managerial Accounting Research, Tax Notes and Issues in Accounting Education.