Tax filing update and Families First Coronavirus Response Act
Dear Clients & Friends:
This email provides updated information related to federal and state COVID-19 relief as well as a quick synopsis of the tax related content of the Families First Coronavirus Response Act enacted last Friday.
Federal filing and tax payment relief pursuant to IRS notice 2020-18 https://www.irs.gov/pub/irs-drop/n-20-18.pdf – The following apply to all taxpayers, i.e. individuals, trusts, estates, partnerships, and corporations:
- The due date for federal income tax returns and payments due on April 15th are automatically postponed to July 15th, regardless of the payment amount owed. No extension or other action is required in order to receive this relief – it is automatic.
- The tax payment relief applies to all income tax due on April 15th for the 2019 tax year and all estimated tax payments due on April 15th for the 2020 tax year.
- No penalties or interest will apply to the period from April 15th through July 15th.
The IRS posted FAQs related to the above notice on March 24th https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers. The FAQs specify that because the deadline to contribute to an IRA and/or HSA for the 2019 tax year is the due date of the federal tax return, those contribution deadlines have also been extended.
State filing and tax payment relief – States are not bound by federal actions thus each state varies in its response to the crisis. The AICPA is maintaining an updated list here https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf.
Oregon specific filing and tax payment relief – Governor Brown issued Revenue Director Order 2020-01 on March 24th https://www.oregon.gov/dor/Documents/Revenue-Directors-Order-20-01.pdf. The revenue department also published Q&As https://www.oregon.gov/dor/Documents/Director-Order-QA.pdf. The below provisions apply to personal income, LTD and fiduciary taxpayers as well as corporate excise and income taxpayers:
- The Oregon return filing due date for 2019 is automatically extended to July 15th.
- The Oregon tax payment deadline for payments due with the 2019 tax return is automatically extended to July 15th.
- Estimated tax payments for the tax year 2020 are not extended.
- No penalties or interest will accrue related to payments extended pursuant to the order until July 16th.
The first estimated tax payment for the new Corporate Activity Tax has not been extended and remains due on April 30th. The DOR has indicated it will consider waivers of penalty for underpayment of the tax to the extent it is difficult for businesses to estimate their first payment if a good-faith effort is made.
We have no information at this point on whether the City of Portland and Multnomah County business tax returns and applicable payments will be extended beyond their current due date of April 15th.
Families First Coronavirus Response Act – The Act requires employers to provide family and medical leave as well as sick leave to employees while providing tax credits to employers providing such leave. The Act includes the four tax credits and one tax exemption discussed below.
- Payroll tax credit for required paid sick leave – The Act generally requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). 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 that is a caregiver.
The tax credit corresponding with this mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll 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 excludible from employee income and (2) the employer’s share of the payroll Medicare hospital tax imposed on any payments sick leave payments required. Credit amounts earned in excess of the employer’s 6.2% Social Security (OASDI) tax are refundable. 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.
- Income tax sick leave credit for the self-employed – The Act 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. Thus, with some limits and calculation differences, 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.
- Payroll tax credit for required paid family leave – The Act requires employers with fewer than 500 employees to provide both paid and unpaid leave (with an administrative exemption for less-than-50-employee businesses that the leave mandate puts in jeopardy). The leave generally is available when an employee must take off to care for the employee’s child under age 18 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 tax credit corresponding with this mandate is a credit against the employer’s 6.2% portion of the Social Security (OASDI) payroll 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.
- Income tax family leave credit for the self-employed – The Act provides to the self-employed a refundable income tax credit (including against the taxes on self-employment income and net investment income) for family leave similar to the self-employed sick leave credit discussed above. Thus, a self-employed person is treated as both an employer and an employee for purposes of the credit and is eligible for the credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee. Thus, with some limits and calculation differences, the self-employed person is eligible for a family leave credit to the extent that an employer would earn the payroll family leave credit if the self-employed person were an employee.
- Exemption for employer’s portion of any Social Security (OASDI) payroll tax arising from required payments – Wages paid as required sick leave payments or family leave payments under the Act aren’t considered wages for purposes of the employer’s 6.2% portion of the Social Security (OASDI) payroll tax.
The massive $2 trillion stimulus bill has multiple tax provisions and is expected to pass the house today. We’ll send an email covering the bill next week but in the meantime, here’s a good summary https://www.journalofaccountancy.com/news/2020/mar/cares-act-economic-relief-coronavirus-tax-provisions.html?utm_source=mnl:alerts&utm_medium=email&utm_campaign=25Mar2020&utm_content=button.
Our firm is not engaged in human resources or labor law, and we briefly explain the leave required by the Act only as a means to understand the tax credits. You should rely on other professionals to advise you in those areas.
As you know, the horizon is rapidly changing. We’ll do our best to keep you informed.
Zirkle, Long, and Associates