Coronavirus (COVID-19) Tax Relief for Businesses and Individuals

By Ross Uehara-Tilton

Federal and State Tax Extensions and Other Relief
On March 21, 2020, the IRS issued Notice 2020-18 (superseding Notice 2020-17), which extends the due date for filing and payment of 2019 federal income taxes to July 15, 2020. This extension applies to most taxpayers, including individuals, trusts and estates, and businesses. The extension does not apply to other tax types, such as payroll tax withholdings for businesses, and also does not apply to other tax years (i.e., returns and payments that were already delinquent will still be considered delinquent). It also does not apply to estimated tax payments that were otherwise due for tax year 2019. The extension is automatic, and taxpayers do not need to file a written request for the extension.

On March 25, 2020, the IRS announced the People First Initiative, which suspends certain collection actions, such as tax liens and garnishments, through at least July 15, 2020. The Initiative also suspends payment requirements under existing payment plans through the same date.

On March 23, 2020, the Hawaii Department of Taxation issued Tax Announcement No. 2020-01, which provides similar extensions for Hawaii State income taxes. The extension applies to returns and payments that were otherwise due between April 20, 2020 and June 20, 2020, and extends the deadline to July 20, 2020. The State extension is also automatic, and taxpayers do not need to file a written request for the extension.

Tax Credits for Businesses in the Families First Coronavirus Response Act
On March 18, 2020, the President signed the Families First Coronavirus Response Act (“Act”), which includes various tax credits for businesses:

  • Employee Retention Tax Credit — To encourage employers to maintain payroll, eligible employers can claim the Employee Retention Tax Credit (ERTC). The ERTC is a refundable credit against certain employment taxes of up to 50% of certain qualified wages up to $10,000 (equaling a total credit value of up to $5,000) per employee.
  • Payroll Tax Credit for Sick and Family Leave — Separate and apart from the ERTC, employers may qualify for a refundable tax credit against the employer portion of Social Security taxes, equal to 100% of qualified paid sick leave wages paid under the Emergency Paid Sick Leave Act (limited to between $200 to $511 per employee per day for 10 days, depending on whether the employee is under a quarantine order or has COVID-19 symptoms). Employers may also qualify for a non-refundable tax credit against payroll taxes, equal to 100% of qualified family leave wages required to be paid under the Act (limited to $200 per employee per day and the lesser of the employer’s total payroll taxes for the calendar year or $10,000).

Employers can file immediate refund requests using Form 7200 instead of waiting to use the credit against their payroll tax liability in their next quarterly filing. These credits only offset the employer’s portion of the tax, and employees will still pay the employee’s portion of the tax on paid sick or family leave. Employers cannot “double dip” and cannot count the same wages for more than one of the credits.

Early 401(k) Withdrawals
Individuals may be eligible to withdraw up to $100,000 from their employer-sponsored 401(k) account in 2020 to cover expenses incurred as a result of the COVID-19 pandemic without incurring the usual 10% early withdrawal penalty. Income taxes incurred from the withdrawal can be paid over a period of 3 years.

These rules apply differently depending on an employer’s or individual’s own circumstances and are rapidly evolving on an almost daily basis. Please consult a tax professional for further information before relying on the information above.

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