Lots of Tax Changes – Let’s start with FMLA

You have an employee who either catches COVID-19 or cares for someone with COVID-19, or is quarantined due to COVID-19 exposure, or who has to keep the kids because school and daycare are gone. Under the Families First Coronoavirus Response Act, you get two things: (1) a credit up to 100% of employer share of medicare and FICA taxes capped at $511 per day or $200 per day of wages paid depending on the reason for the absence. There is also a 10 day per quarter limit. This includes health plan payments as well. The credit is refundable and reduces income. Further, employer still gets the employer FICA and Medicare deduction even though its given back to Employer. The same rules apply for self-employed individuals as well and can be used to reduce self-employment taxes as well.
Additionally, the Medicare and FICA tax paid by employers is also permitted for FMLA leave paid during the quarter up to $200 per day plus health plan expenses paid during the quarter. This credit is limited to 10 weeks. However the credit under this provision is taxable as income, but its offset by these expenses. Again the same rules apply for self-employed individuals.
Also any wages paid to the employee under this Act will not be subject to employee Medicare and FICA tax.
This is being amended as we speak in the current bill before Congress.

Teeny Tiny breaks from Virginia.

On March 19, 2020, Governor Northam made the following announcement:
“Businesses impacted by COVID-19 can also request to defer the payment of state sales tax due tomorrow, March 20, 2020, for 30 days. When granted, businesses will be able to file no later than April 20, 2020 with a waiver of any penalties.

The Governor has requested that the Department of Taxation to extend the due date of payment of Virginia individual and corporate income taxes. While filing deadlines remain the same, the due date for individual and corporate income tax will now be June 1, 2020. Please note that interest will still accrue, so taxpayers who are able to pay by the original deadlines should do so.”

So, business can request sales tax deferral for 30 days and avoid penalties (not interest). Query whether they will grant it quickly or you won’t find out for 60 days. Individuals still have to file on time, but now have an automatic 30 day extension to pay as well. Still accrues interest. I guess a slice of bread is better than no bread at all.

Tax Policy Steps America Should take in light of crisis

1. Reinstate the NOL carryback. This will allow small business owners and taxpayers to recoup losses due to corona virus.
2. Allow a partial year 2020 return through June 30, 2020 which would allow an NOL carryback to be utilitized now, so that when a tax return is due on July 15, 2020, there is a concomitant return filed showing nothing is due and in fact a refund is due.
3. Redefine “casualty” to include losses caused by 2020 pandemic.
4. Remove the 7.5% floor on medical deductions for the year 2020.
5. Reinstate employee business expense deductions for 2020 to allow employees who had to go buy computers, or hire computer techs, or subscribe to FIO or Cable for telecommuting purposes be allowed those deductions.                                                                                                                     6.   Move filing deadline for tax returns to July 15.

These simple steps would in my view help in reducing the damage caused by this virus.

IRS payment deferral included April 15 Estimated Payments as well

According to IRS Notice 2020-17, income tax payments and estimated tax payments due on April 15, 2020 are extended to July 15, 2020 (under $1 Million for individuals and joint returns). It does not extend June 15 estimated payments however. Further, it does not extend filing deadlines for tax returns. Lastly, it does not say that if you e-file a return and mark the box to pay the tax by debit on the due date whether that debit will occur on April 15 as originally planned or on July 15, the new payment due date.