COVID-19 and your Taxes
The coronavirus pandemic ( Covid-19) put a lot of financial strain on the economy in this year 2020 and due to this, the Federal government, and state governments have decided to put some needed measures to serve as a relief for citizens during this trying period. Many policies were reviewed and new laws approved, all in a bid to support the crumbling economy and also support citizens through the problems caused by the corona pandemic and lockdown policy in 2020.
One of the most important measures put in place for COVID-19 relief for taxpayers was the CARES act that was signed by the President of the United States of America, Donald Trump, in March 2020. CARES act- Coronavirus Aid Relief and Economic Security Act was signed with a lot of practical and workable tax solutions to many pending issues of taxpayers in this pandemic period.
All the COVID-19 relief measures and policies, put in place in for taxpayers in this year 2020, involve a lot of reforms to the tax code for the year 2020 and taxpayers have to understand what it means for their taxes this year. What changes has Covid-19 brought and how does it benefit or negatively affect you?
Ways in which COVID-19 has affected your 2020 taxes
Federal tax payment deadlines postponement
For taxpayers that have a deadline for their tax payments falling between April 1st, 2020, and July 15th, 2020, an automatic relief was provided that gave an extension for the date due for tax payment for the year 2020.
Previously, tax day was always April 15th of every year. However, as a form of relief to taxpayers, the deadline for federal income tax payment for individuals, corporations, trusts, and estates was moved to July 15th, 2020 as a response to the effects of the COVID-19 pandemic within that period. Tax payments previously due for payment on the 15th of April can be deferred till July 15 before payment without incurring any tax penalty or additional interest for the delay in tax payment. This will, after all, afford taxpayers a little more time to gather the needed resources to settle their tax debt without the fear of incurring tax penalties.
Federal tax returns filing deadlines postponement
Alongside the automatic relief of deadline postponement for tax payment, an automatic relief for the extension of the deadline for filing of tax returns was also given to taxpayers with a deadline between April 1 – July 15, 2020. The previous deadline for filing of tax returns was April 15, however, it was postponed to July 15, 2020, to give more allowance for taxpayers to file their tax returns without the need of filing for an extension or to be subjected to tax penalties. This extension period applies to individual taxpayers, corporations, estates, and trusts.
Provision of Recovery Rebates
Most taxpayers are already used to remitting funds in form of taxes to the Internal Revenue Service, however, due to COVID-19 relief, the IRS will be remitting funds to taxpayers called “Recovery Rebates” or the economic impact payment. This is a form of 2020 tax credit from the government being paid to taxpayers and is up to $1200 for an individual, $ 2400 for married couples, and $500 for a child. However, the payments are dependent on the gross income filed on the 2018 and 2019 tax returns of taxpayers. Individuals with a gross income above $75000 or couples with gross income above $150,000 will not be eligible to receive the economic impact payment.
No additional interest for borrowing from retirement plans
Taxpayers have been given an allowance to take out up to $100,000 form their retirement accounts for any coronavirus related financial issue without having to receive any penalty for the early withdrawal of funds from the retirement account. This loan is available to taxpayers that might have contacted coronavirus or have a relative or a loved one who has contacted the virus within this period and have a need to supplement their finances for health care and other expenses that will be incurred.
However, any fund taken out of the retirement account has to be returned back within 3 years of withdrawal to avoid attracting a penalty or additional interest.
Payroll tax deferral relief
A whooping 6 .2 % of the employer’s portion of the social security tax usually been removed from the income of employees and remitted to the IRS as tax, has been approved for deferral of payment from March 2020 to December 2020. Therefore, during this deferral period, there will be a significant increase in the wages of workers due to the deferral of payment of a percentage of social security taxes.
However, it should be realized that the relief is for a deferral of the taxes and not for the forgiveness of the taxes. After the deferral period, taxpayers should probably expect as much reduction in wages for paying back the deferred taxes as they experienced an increase in wages during the deferral period.
Adjusted rules guiding net operating losses
The previously phased out carryback of a net operating loss was re-established. One of the relief measures for COVID-19 was to allow the possibility to carry back losses for taxpayers experiencing a net operating loss in their businesses. This provision allows business owners the ability to carry back net operating losses up to 5 years back. And due to the high tax rate then, the business owner might be due for a tax refund. However, an individual can also decide to carry forward net operating loss instead of carrybacks if they so desire.
Elimination of the corporate alternative maximum tax (AMT)
The tax reform for 2020 due to the coronavirus pandemic has led to an elimination of alternative minimum tax (AMT) and therefore there will be a refund available from the 2018 tax year. The tax returns filed for alternative maximum tax for the year 2017 will be the last considered, any filed AMT in years after 2018 will be a refundable credit.
Payroll tax credits for employer’s tax relief
In the new tax reform, provisions were made available for employers to permit paid sick leave and family leave if the cause was due to coronavirus or taking care of a loved one with coronavirus during this period.
Due to this, employers will be entitled to receive a full refund of the required paid sick leave and paid family leave for employees and the medicare tax share on the leave granted. Therefore, from the employment tax removed from the wages of all workers, the employer is permitted to reduce the tax deposits to be made to the IRS in anticipation of the payroll tax credits. For employers that filed late due to the anticipation of these credits, forgiveness of penalty will be approved and a refund will be requested from employers whose employment tax deposits do not meet up to the required tax credit.
Provision of employee retention credit
An employee retention credit will be made available to employers that were required to fully or partially shut down their businesses due to the lockdown policy of the coronavirus pandemic. This tax credit will help employers that have their total gross receipts below 50% of the expected yearly gross receipts according to previously filed returns. The credit will be given until they can raise their gross receipts to at least 80% of what it used to be before the pandemic.
Suspension of aviation taxes until the year 2021 was approved, Quality improvement property (QIP) was made eligible for bonus depreciation after a technical error was fixed in the previous tax code of Tax Cuts and Jobs Acts of 2017,
The COVID-19 pandemic, despite its challenges, has brought in some needed tax reforms in the year 2020. All these reforms and changes were put in place by the government to provide relief to individuals, corporations, trusts, and estates that would otherwise have gone through a rough financial period without governmental intervention. Taxpayers, however, have the responsibility of being informed properly of the tax reforms that the coronavirus pandemic has brought about and understanding how it affects them in this tax year.
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