Deferment of all payment and filing deadlines
The IRS initially responded to COVID-19 with a limited tax relief program, but almost immediately adopted a more comprehensive plan for all taxpayers, including individuals, partnerships, trusts, estates, associations, companies, and corporations — even if the expected impact of the pandemic is considered minimal
- Taxpayers with a Federal income tax return or federal income tax payment due on April 15, 2020 automatically received an extension to July 15, 2020, regardless of the size of payment owed.
- Taxpayers aren’t required to file Form 4868 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to qualify for the July 15, 2020 extension.
- The relief extension is intended for Federal income tax payments (including tax payments on self-employment income) and Federal income tax returns due on April 15, 2020 for the 2019 tax year. The extension also applies to Federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020 for the 2019 tax year.
- Extensions are nor provided for the payment or deposit of any other type of Federal tax, including estate or gift taxes, or the filing of any Federal information return.
- Due to the tax payment and return filing extension from April 15, 2020 to July 15, 2020, that period is disregarded when calculating any penalties, interest, or tax additions associated with a failure to file the postponed income tax returns or postponed income tax payments. Interest, additions, and penalties will begin to accrue on July 16, 2020.
Option to use a Health Savings Accounts for COVID-19 related payments
There are pros and cons to Health Savings Accounts (HSAs) and Flexible Spending Accounts when using untaxed dollars to pay for health expenses. One disadvantage is that a qualifying HSA might not reimburse the account beneficiary for medical expenses until the expenses exceed the required deductible amount.
However, the IRS announced that any payments from an HSA used to test for or treat COVID-19 don’t affect the status of the account as an HSA, and don’t result in a tax for the account holder, even if the HSA deductible isn’t met. Vaccinations continue to be seen as preventative measures that can be paid for regardless of the deductible amount.
Tax exemptions and credits to minimize the burden of COVID-19 business mandates
The Families First Coronavirus Response Act (theAct, PL 116-127) signed by President Trump on March 18, 2020 reduces the burden of compliance on businesses. The Act includes the four tax credits and tax exemption detailed below:
The payroll sick leave credit: payroll tax credit for required paid sick leave
The Emergency Paid Sick Leave Act (EPSLA) division of the Act requires private employers with less than 500 employees to provide 80 hours paid sick time to employees who are unable to work for virus-related reasons. (With an administrative exemption for businesses with fewer than 50 employees potentially jeopardized by the leave mandate.) The pay is up to $511 per day with a $5,110 overall limit for an employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee acting as a caregiver.
The tax credit corresponding with the EPSLA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit amount generally tracks the $511/$5,110 and $200/$2,000 per-employee limits described above.
The credit can be increased by (1) the amount of certain expenses in connection with a qualified health plan if the expenses are excludable from employee income and (2) the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax (or in excess of the Railroad Retirement tax) are refundable. The credit is electable and includes provisions that prevent double tax benefits (for example, using the same wages to get the benefit of the credit and of the current law employer credit for paid family and medical leave).
The credit applies to wages paid in a period (1) beginning on a date determined by IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
Self-employed sick leave credit: income tax credit for the self-employed
The Act also provides a refundable income tax credit (including against the taxes on self-employment income and net investment income) for sick leave to a self-employed person by treating the self-employed person both as an employer and an employee for credit purposes. Accordingly, the self-employed person is eligible for a sick leave credit to the extent that an employer would earn the payroll sick leave credit if the self-employed person were an employee.
The self-employed person can receive an income tax credit with a maximum value of $5,110 or $2,000 per the payroll sick leave credit. However, those amounts are decreased to the extent that the self-employed person has insufficient self-employment income determined under a formula or to the extent that the self-employed person has received paid sick leave from an employer under the Act. The credit applies to a period (1) beginning on a date determined by the IRS that is no later than April 2, 2020 and (2) ending on December 31, 2020.
The payroll family leave credit: Tax credit for mandated paid family leave
The Emergency Family and Medical Leave Expansion Act (EFMLEA) division of the Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for businesses with less than 50 employees that may be disproportionately jeopardized by the mandate.) Leave is generally available when an employee must take off work to care for their child under age 18, or because of a COVID-19 emergency declared by a federal, state or local authority that either (1) closes a school or childcare place or (2) makes a childcare provider unavailable.
Generally, the first 10 days of leave can be unpaid and then paid leave is required, pegged to the employee’s pay rate and pay hours. However, the paid leave can’t exceed $200 per day and $10,000 in the aggregate per employee.
The corresponding tax credit associated with the EFMLEA mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax). The credit generally tracks the $200/$10,000 per employee limits described above. The other important rules for the credit, including its effective period, are the same as those described above for the payroll sick leave credit.
Exemption for an employer’s portion of any Social Security (OASDI) payroll tax or railroad retirement tax arising from required payments
Wages paid as required sick leave payments because of EPSLA or as required family leave payments under EFMLEA aren’t considered wages for the purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax or for purposes of the Railroad Retirement tax.
References: For further discussion of the postponed tax payment and filing deadlines in place because of COVID-19, see FTC 2d/FIN ¶S-8501.07; United States Tax Reporter ¶75,08A4.