EPSTEIN, SHAPIRO & EPSTEIN DURING COVID-19
Epstein Shapiro & Epstein remains open and available to our clients by telephone and email although access to our office is limited pursuant to Governor Wolf’s order. We are continually monitoring our phone calls and will respond to your emails expeditiously. In addition, as we work for you remotely, we have access to digital documents. While our courts and other government agencies remain closed we are here to answer questions and respond to ongoing legal needs and concerns. Stay Safe.
Please see below for information regarding:
- Individual Tax Relief Under the CARES Act
- Small Business Assistance
- Tax Administration: IRS on Slowdown Until July 15
Individual Tax Relief Under the CARES Act
Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act Saturday March 28 with a number of provisions to aid and assist individuals and businesses over the next few months and years. Here is a summary of just a few of those relief provisions. We would hope that over the next few weeks, Congress will also issue regulations that will help us to understanding and implement the relief package. For more questions to your specific situation please call or email us. The entire Act can be found here: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
Refundable Tax Credits
The CARES Act provides for cash payments that are similar to outright grants to taxpayers and their dependents. These payments are being distributed as a tax credit based upon the filing of a prior tax return. Individuals are allowed an income tax credit equal to the sum of $1,200 for individuals and $2,400 for married individuals filing joint tax returns. In addition, there is a credit of $500 for each qualifying child or other dependent under age 17. There is no limit on the number of children eligible for the credit. The credit begins to phase out once an individual has more than $75,000 of income and is completely phased out once adjusted gross income exceeds $99,000. For joint filers the phase out begins at $150,000 and is completely phased out at $198,000. As a refundable credit, this means that a check will be forthcoming from IRS. Individuals with no income or income from SSI are eligible for the credit although there is some question about how the credit would finds it way to anyone who has not filed a tax return, not because of negligence or oversight, but because they did not have sufficient income to require a tax return.
As a refundable credit, the payment is tied to an individual’s 2019 tax return so that it can be paid immediately. Since many individuals have not yet filed their 2019 returns because of the extension given to file to July 15, 2020, the refundable credit will be based upon the available 2018 tax return of the taxpayer. If for some reason an individual was not eligible for a refund based upon 2019 tax information, the credit can be claim next year when filing a 2020 tax return.
There will be an opportunity to re-determine your actual rebate when you file your 2020 return in 2021. If you should have received a higher rebate perhaps because your income was less in 2020 and you were under the phase out limitation or if you had another child in 2020, then you may get an additional payment. You won’t be required to pay back any excess rebate.
Non-Income Payments by Employers for Students Expanded
Section 127 of the Internal Revenue Code allowed employees to exclude from income an amount up to $5,250 for payments made by an employer to assist with the employee’s education. Now under the CARE Act, those non-income payments can also include payments for eligible student loan repayments.
Retirement Plan Distributions Without Penalty
The CARES Act allows for an early distribution from and IRA or retirement plan by the end of this year without the normal 10% early distribution penalty so long as 1) the participant, his or her spouse, or his or her dependent was diagnosed with Covid-19 or 2) the participant suffered virus related adverse financial consequences from quarantine, layoff or a reduction in work hours or child care problems. These special distributions must be repaid within three years or the penalty will be imposed retroactively.
Retirement Plan Loans
The CARES Act raised the limit that can be borrowed from a qualified retirement plan (not IRA) from $50,000 or 50% of the plan benefit to $100,000 or 100% of the vested plan benefit. The participant must meet the same qualifications and for early plan distributions in the prior paragraph. Loan repayments can be deferred from 2020 while the loan repayment period will be extended to six years from five years.
Delay in Requirement Minimum Distributions from Retirement Plans
Echoing a similar relief provision from 2008, individuals can elect to delay taking their 2020 required minimum distribution from an IRA or qualified retirement plan for one year, pushing back the requirement to 2021.
Congress restored the ability of individuals to take a charitable loss deduction on their tax return for cash contributions up to $300 regardless of whether they itemize on their return. Further, qualified contributions will be disregarded when applying the 60% limit on cash contributions paid in 2020.
Restored Deduction for Excess Business Losses
For the period of time between December 31, 2017 and January 1, 2026, non-corporate taxpayers were denied a loss deduction for when business deduction exceeded business income plus $250,000. The CARES Act restores this deduction for years 2018, 2019 and 2020. There are additional changes that will impact businesses regarding interest expense deductions, delayed payment of estimated tax and alternative minimum tax.
The federal government is boosting unemployment checks by up to $600.
Small Business Assistance
Aid to businesses under the Coronavirus Aid, Relief, and Economic Security (CARES) Act is provided for in many ways. Here are just a few relief provisions:
Payment Protection Programs
This program offers loans (up to $10 million maximum) to employers with fewer than 500 employees who maintain payroll with the later possibility that the loans would be forgiven. In general the maximum loan is equal to 250% of average monthly payroll. The maximum interest rate is 4% and the maximum term is 10 years. The CARES Act provides for loan forgiveness if an employer can demonstrate that they have retained their employees for a covered period of 8 weeks. The loan application deadline through SBA is June 30, 2020. There has been an expansion of the SBA disaster loan program for employers with under 500 employees, the Small Business Debt Relief Program and the Economic Injury Disaster Loans & Emergency Economic Injury Grant program. For more information on all SBA loans follow this link: The U.S. Senate Committee of Small Business & Entrepreneurship Guide to the CARES Act. https://www.murphy.senate.gov/download/small-business-owner-guide-to-cares
Employee Retention and Payroll Credits
This program is also designed to help employers of few than 100 persons to retain their employees and keep them on the payroll by giving an employer a refundable payroll tax credit for 50% of wages paid during the crisis. It is available to employers will complete or partial business suspension and to employers experiences a greater than 50% reduction in quarterly receipts compared to last year at the same time. With numerous other requirements we note that the term “wages” is capped at $10,000 paid to an eligible employee.
In addition, employers can defer paying payroll taxes through 2020. This will not apply to any employer who had a loan forgiven under the Small Business Act. Half of the tax debt will be required by December 31, 2021 and the other half by December 31, 2022.
Tax Administration: IRS on Slowdown Until July 15
IRS is essentially operating at a minimum level. Most of its employees have been directed to work from home starting March 30, there are no in person meetings, and we are informed that while mail is received it is not being sorted or opened. As practitioners we know that it is very difficult at this time to file our representative powers of attorney or to reach out to an IRS representative on your behalf on the practitioner hotline. On the other hand, we know that until July 15 IRS has suspended payments (but not interest) under existing installment agreements and will not default any installment agreement, initiate a lien or levy or refer a delinquent taxpayer to the State Department for passport revocation (but who’s traveling anyway?). IRS will not refer an account for Private Debt Collection nor will they start any new audits.