Congress and the Treasury Department have never moved as fast as in the last two months. Two new tax laws have passed and been signed into law and many Treasury Regulation changes have happened to try and stabilize the economy. Many of these changes are directed at assisting small to medium size businesses survive through this pandemic. The following is a summary of some of what’s happening for business owners and the self-employed.
This is a Treasury notice that moves the income tax return and payment due date from 4/15/2020 to 07/15/2020. This applies to Individual tax form 1040, Corporations filing 1120, Partnerships filing form 1065, Trusts and Estates filing form 1041. The returns do not have to be filed until 07/15 and there will be no penalties. An extension is not required unless you intend to file later than 7/15. For instance, is you normally request an extension and file your return in September or October, you will still need to file that extension.
Payments due on 04/15/2020 have also been moved to 07/15/2020. This includes income tax due as well as the first quarter estimated tax payment. This does not change the 06/15/2020 due date for the second quarter return. This could be changed later, but as of today, you will make your second quarter payment on 06/15 before the first quarter payment is made on 07/15.
This also moved IRA and HSA funding dates to 07/15/2020.
Federal Family First Coronavirus Response Act
Employers must provide paid leave if the business has 500 or fewer employees. There are exemptions for employers with less than 50 employees if it jeopardizes the business.
Employers get a 100% refundable tax credit against employer Social Security payroll taxes for:
- Qualified sick leave wages
- Qualified family leave wages
- an equivalent refundable credit will be available to self-employed individuals on their 2020 tax return.
These payments have limitations and multiple calculations depending on each situation. Please contact your tax advisor to help you determine if you are required to make payments and how to recover those.
Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”
As many already know this bill contains individual tax rebate checks which will be issued sometime in the next few weeks. This bill also contains a lot of help to small business owners in the form of tax credits and delayed tax payments.
Employee Retention Credit
This credit is designed to assist business owners in retaining employees after the pandemic has ended by being able to provide them with pay while they are not able to work. It allows for a 50% credit of qualified wages paid against employment taxes in a quarter, reduced by any other credits used, and if there is excess it is refundable. The credit available is up to $10,000 per employee for the tax year 2020. Medical benefits paid for employees is included.
To qualify as an eligible employer:
- Operations are fully or partially suspended during a calendar quarter due to government order
- Gross receipts for a calendar quarter are less than 50% of gross receipts from the same quarter in the prior year
- No SBA Small Business Interruption Loan has been taken.
- Wages must be paid or incurred after 03/12/2020 and before 01/01/2021
Payroll Tax Payment Delay
The employer portion of payroll taxes incurred between 03/27/2020 and 01/01/2021 can be delayed. 50% of these taxes are due before 12/31/2021 and the other 50% is due before 12/31/2022. This was enacted to help employers keep cash now and push these payments down the road. This is also available for self-employment taxes due on a 2020 Federal 1040 return.
Net Operating Loss (NOL) Changes
The TCJA tax law passed in 2017 changed the way NOL was handled on tax returns. You could no longer carryback, and it was limited to 80% taxable income. The CARES Act has retroactively changed those rules for tax years 2018, 2019, and 2020. NOL’s for those years can be carried back up to 5 years and can once again eliminate 100% of taxable income. There are some real opportunities here to amend prior year returns if you had losses.
There is a lot of new information in these Notices and bills, some of which we are still waiting on Treasury or IRS guidelines. There are also expanded SBA loan availabilities which I did not mention earlier.
If your business is struggling or shut down at this time, as many of us are, there are opportunities to get help. Please contact me or your tax advisor to see if these programs will help you in your time of need.