Covid-19 and Taxes: What you need to know
UPDATED AS OF 5/1/2020 3:11PM PST
I’m creating this and writing during my busiest time of year with a quarantined home and while worried for my parents and 90 year grandma. Please forgive typos in general lack of creativity.
I’ll be updating this as often as I can and back-linking to relevant sources for accuracy. There is a TON of false information floating around.
See my blog about the Coronavirus SBA Loans here.
See my blog about applying for the PPP Loan here.
Table of Contents
Federal extension of due dates
Federal Extension of Due Dates
Payment deadline has been extended from 4/15/2020 to 7/15/2020 without penalties and interest.
This means that if you owe federal taxes for 2019, they will let you pay as late as July 15th. 2020 without any interest or penalties added.
Filing due date extended to 7/15/2020
This means you don’t have to file an extension or your return until 7/15/2020.
If you expect a refund? File NOW! Who knows how slow the government will be in issuing refunds with all the chaos going on.
Estimated Q1 taxes also pushed
Per IRS, these payments are also extended by 90 days so you can hold onto those payments a little while longer.
WHAT TO DO:
If you have a refund, file ASAP and get those funds. Who knows how long it could take.
If you can’t pay your balance, adjust your budget and make plans to pay by 7/15/2020.
IRA contribution deadline pushed to 7/15/2020
Per IRS, the deadline to make a timely payment is done by the due date of the return - they’ve confirmed it applies to the change of due date too.
Retirement Distributions/Loans
You can withdraw up to $100k this year without the usual 10% penalty, if its due to the outbreak. You can also repay this within 3 years and have no tax consequences!
Corona-virus related distribution means its to 1) an individual who is diagnosed with the virus 2) who has a spouse or child diagnosed with proven testing, OR 3) someone who experiences adverse financial consequences as a results of being quarantined, being furloughed or laid off or having work hours reduced due to such virus, lack of child care. closing or reducing hours of business all due to the virus.
Alternatively, you can borrow up to $100k (normally limited to $50k) from your IRA as a loan.
No one will have to take a required minimum distribution.
Stimulus Checks
I really want to clear up some confusion on these stimulus checks. These checks are advances on a 2020 rebate.
So then is this an advance on next years refund?
NO!!! This $$$ is NOT an advance on next years refund. If this virus didn’t happen, this is money that would have never been yours. It’s a rebate, aka bonus money, aka extra money, aka “free” money and it’s not going to affect your tax liability, PERIOD. It’s used to pay our bills and stimulate the economy because of the major effect that Covid-19 has had on us.
Okay I’m going to pretend I understand the above, how does the plan work then?
They are disbursing a stimulus check to you that is technically based on your income for 2020. I know! It’s April of 2020!
So to get these funds to you NOW, they have to qualify you based on the information they have, which is either your 2018 or 2019 filed returns.
What are the check amounts?
$1,200 for every adult ($2,400 married) and an additional $500 per child 16 or under - limited by income thresholds below:
Singles/Married filing separate - above $75,000 starts phasing out, no benefit above $99k
Married Filing Joint - above $150,000 starts phasing out, no benefit above $198,000
Head of Household - above $112,500 starts phasing out
Who else does NOT qualify?
Besides income thresholds there are certain people who won’t be seeing a check:
Anyone without a SSN
Anyone that is 17 and above that is claimed as dependent
Senior citizens claimed by their adult children
Disabled adults claimed by family members
College students claimed on their parents returns
Is the rebate taxable?
No. “But I heard”…NO! It is not.
What if I only receive Social Security or Disability and don’t have a filing requirement?
You do not need to file a return. They will use your SSI information and you are still qualified as long as you are not a dependent of another person.
What if I don’t receive SSI AND I don’t have a filing requirement?
If no one is claiming you as a dependent, then you should file a simple return with turbotax or something. The IRS probably won’t have any information to send $$ to you. Make sure to drop in direct deposit info.
What if I only filed 2018 and not 2019?
They will use 2018.
What if I don’t qualify based on 2019 income but I will qualify in 2020 because my income will drop?
You’ll receive the rebate with your 2020 return in 2021.
What if I do get the check because I made less in 2019 but I made too much in 2020 - do I need to pay it back?
There is no clawback provision in the law. So as of now, lucky you - you don’t have to pay it back.
What if I had a kid in 2020?
Well the IRS wouldn’t know about it. But as the language is written, if the rebate is really related to 2020 - you should technically get this on the 2020 return in 2021.
When will I get the funds?
If you had direct deposit then it should already be out to you by now.
If you did not, you will be expecting a paper check but it may not come for 5 MONTHS!
If I’m expecting a paper check how can I speed it up?
Go to this website: https://www.irs.gov/coronavirus/get-my-payment ; I’ve heard it taking about 3 weeks after entering info but no promises.
NOTE: Watch out for fraud people! Make sure you do this very carefully if you go this route. The IRS will not call for your direct deposit information.
What if I have an installment plan or owe back taxes?
You should still be getting this check.
Paid Sick Leave Act
Passed by President Trump on March 18, 2020.
Paid Sick Leave for Workers
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees' children's schools are closed or child care providers are unavailable.
Complete Coverage
Employers receive 100% reimbursement for paid leave pursuant to the Act.
Health insurance costs are also included in the credit.
Employers face no payroll tax liability.
Self-employed individuals receive an equivalent credit.
What does this mean for self employed people???
You are to receive an equal credit that is applied against income tax. This will be applied against 2020, which is a delay in relief. However, if you pay estimated tax payments, you could consider reducing those to count for this credit.
Employee Retention Credit
This refundable tax credit is for business owners with employees (including themselves).
NOTE: Cannot be used with the PPP loan.
The tax credit is 50% of wages up to 10k per employee if your business has been financially impacted by Covid-19.
Do you qualify?
You must either:
Be a business that is fully or partially suspended by government order due to Covid-19. It’s unclear exactly what “suspended” means, but I suspect if you are not an essential business forced to close.
-OR-
Gross receipts are below 50% of the comparable quarter last year.
How is it calculated?
For all wages paid after March 12, 2020 and before Jan 1, 2021 - you can take a credit of 50% of qualified wages - max of $5k credit per employee on $10k wages.
What’s considered qualified?
Employers with less than 100 employees: the credit is based on wages paid to all employees regardless if they worked or not and includes health plan expenses).
Employers with more than 100 employees: the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
How to get the credit?
It comes via payroll tax credits on your 941 reports. You can reduce the amount of payroll tax deposits made for social security/medicare by the credit amount. If the deposit amounts are not sufficient to cover the credit, then you can request an advance payment by submitting this.
My unofficial opinion on this:
It sounds like this program is for places that are partially open and do not plan to lay off or furlough employees at this time (ruling out unemployment).
In this case, I am still a bigger fan of the PPP loan. As its fully forgivable for wages over a 2.5 month period and wages are capped at $100k per employee (vs $10k).
However, the credit itself is still better than nothing if you can’t get the PPP loan, need to keep payroll going, and have lower wage employees.
Work with your payroll professional on getting this.
Expansion of Unemployment
Biggest changes:
Major expansion on who is covered under unemployment, including self-employed individuals and businesses who have not paid into unemployment.
Under the plan eligible workers receive an extra $600 per week on top of their state benefit.
The duration of coverage is up to 39 weeks.
My Notes:
As an employer, your ex/furloughed employees applying for unemployment will not affect your unemployment insurance rate.
The base amount of benefits depend on the state.
Most states are NOT caught up with this Act to apply online. I’ve heard of people not even able to access their site.
Self Employed Workers
Washington - Apply here. Sounds like the process is 1) apply and get denied 2) apply under the pandemic unemployment assistance and 3) file a claim weekly.
Oregon - Apply now here. But the pandemic unemployment assistance tool is not ready. Get your claim in though because it will be retroactive once its up!!
Deferred Student Loan Payments
Call private or non-qualifying student loan providers to delay payments.
Direct Loans and FFEL loans held by the Department of Education are automatically suspending payments until 9/30/2020, with zero interest.
It will not hurt your credit score or loan forgiveness qualification.
Oregon Tax News
Payment deadline?
Finally they decided that they will follow Federal and the due date of the return and payments are pushed to 7/15/2020.
2020 Quarterly estimates have not been extended.
WHAT TO DO:
If you have a refund file ASAP
If you owe and plan to pay later, make sure you file the return OR a federal extension. No separate extension exists for Oregon state, they accept the federal form.
Still pay your Q1 2020 estimate due 4/15.
Washington News
Excise taxes - potential waiver of penalties
Per governor.wa.gov - an extension or late payment penalty waiver request can be made without limitations once the state has declared a state of emergency.
WHAT TO DO:
File an extension with WA
Apply for a late penalty waiver
NOTE: based on my experience they only offer these late penalty waivers one time- 24 month waiver - I don’t know if this one will take up that opportunity. So keep that in mind when taking this freebie if you don’t NEED it.
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