The administrative and legislative changes to address health and financial problems of the global coronavirus pandemic has led tax practitioners to spend more time figuring it all out than was needed for tax reform change of the Tax Cuts and Jobs Act! Of course, the timing of dealing with this right now is more significant than with the TCJA.
I won’t go through all of the changes since there are many other sources, such as the following:IRS Coronavirus website and lots of links;Treasury Department info for small businesses;SBA loan information;Dept. of Labor and required paid leave changes; AICPA Coronavirus Resource Page; AICPA State Tax Chart (very detailed and up-to-date).
A Few Observations:
What will people do with their 2020 recovery rebates (referred to as economic impact payment by the IRS)? Most individuals will get $1,200 tax free. A married couple will get $2,400. Parents with children under age 17 will get $500 per child. There are phase-outs based on income (using either 2018 or 2019 tax return info generally). The Washington Post has a nice online calculator to help you determine your rebate amount.
The folks at Money Done Right estimate that 43% of recipients will use their check to pay debt. See their website for the details.
Recipients should also check if lenders will give them extensions without extra fees or interest expense if they have other needs as well, such as rent.
Federal and most state income tax returns for 2019 that are normally due on April 15 have been extended to July 15. Be sure to check for your state as a few are using a different date.
Individual expecting a refund should file soon if they need the funds.
Money Done Right also has data showing that less than 20% of individual expect to wait until July 15 to file for 2019. That makes sense since many individuals get a refund due to overwithholding during the year (often purposefully done as a savings plan).
States use a fiscal year ending June 30. They will face challenges of having payments normally due April 15 and June 15 due July 15, yet, most, including California have done this.
Recommendation: States should put out a plea to high-income individuals to make their payments for any tax due for 2019, as well as first quarter and second estimated tax payments for 2020 by June 15 or earlier. I think this will help states with their increased spending due to the pandemic and will reduce the need to borrow as much.
Find some way to stay sane despite the overwhelming amount of changes particularly for practitioners helping small business clients.
When relying on any FAQ, print it off because these are not binding but hopefully the IRS will follow them in the future, such as during an audit of a 2019 or 2020 return.
A lot of the changes, such as for paid leave and SBA loans are not tax provisions so tread carefully in offering any interpretations. A challenge is that clients often don’t have anyone else to turn to for financial assistance. Also, some of these items tie to tax rules. For example, HR 6201 (P.L. 116-127) and the required paid leave matches the amount of payroll credits employers get. So, an understanding of the leave rules coordinated by the Dept. of Labor is needed to help a client figure out their payroll tax obligations and timing. And of course, many practitioners have employees so need to know how these rules – tax and non-tax, apply to their own firm.
Documentation: Remind clients (and yourselves) to get documentation now, such as why HR 6201 sick or family/medical leave was given to an employee for which payroll credits were claimed. Likely better to get it now than later.
More Ideas for Tax Law Changes to Help in Dealing with the Pandemic
I offered several in a March 13 blog post (most of where were enacted).
-Relax the home office rules under Section 280A now that so many are working from home:
-Modify the requirement that the office has to be used exclusively for work. This also needs to be done to modernize this rule to reflect today’s ways of working and living (as suggested last
year by the AICPA).
-Relax the principal place of business rule for 2019 since many business owners are working at home.
-Make it clear that if employers reimburse employees for use of their home office, it is allowed without the need to prove that it was for the convenience of the employer.
-The TCJA disallows a deduction for parking and transit passes provided to employees. With employees working at home, employers are still paying these expenses, particularly the parking. Repeal
this rule at Section 274(a)(4) at least for 2019 to help employers.
-Push the federal income tax estimated tax payment due June 15 (still) to July 15 or later. It is too confusing for the second payment to be due before the first payment. Also, June 15 is
likely to early. For example, Virginia has a shelter-in-place order through June 10 and perhaps other states will as well.
-Additional filing and payment is needed. See the AICPA’s April 2 letter to IRS and Treasury on this.
What do you think? What additional suggestions do you have? Annette Nellen.