Relief for Federal Tax Payments Due on April 15, 2020 (IRS Notice 2020-17)
On March 13, President Trump issued an emergency declaration instructing the Treasury to provide relief from tax deadlines for Americans adversely affected by COVID-19. In response, the IRS issued Notice 2020-17, which extended the federal income tax payment deadline for individuals and corporations affected by the COVID-19 emergency by 90 days.
The Secretary of the Treasury has determined, for purposes of Notice 2020-17, that any individuals or corporation with a federal income tax payment due April 15, 2020 is affected by the COVID-19 emergency. These affected taxpayers will have until July 15, 2020 to make payments. Further, the postponed payment is capped at $1 million for individuals, regardless of filing status, and $10 million for corporations.
Extension of Federal Tax Filings Due on April 15, 2020 (IRS Notice 2020-18)
On March 21, 2020, the IRS issued Notice 2020-18, which supersedes and expands the relief granted in Notice 2020-17. Notice 2020-18 extends the Federal income tax return filing deadline, as well as the previously extended payment deadline in Notice 2020-17, to July 15, 2020, without limitation on the amount of the payment. Any interest, penalty or addition to tax with respect to a taxpayer’s postponed Federal income tax filings and payments will start to accrue on July 16, 2020.
This grant of relief is solely in regards to Federal income tax filing and payment, including self-employment tax. Taxpayers may not rely on this grant of relief for any other type of Federal tax or filing of any Federal information return. The Federal extension is automatic and does not require taxpayers to file any forms.
Fiscal Taxpayers: According to the IRS’ FAQs on Notice 2020-18, fiscal taxpayers whose filing date is April 15 received the same relief as calendar taxpayers. (FAQ 4). However, fiscal taxpayers who have a May or June deadline were not granted such relief as of this writing. (FAQ 5). (see irs.gov/)
Payroll Credits Available to Small and Mid-Sized Businesses (IR-2020-57)
Through the Families First Coronavirus Response Act (the “Act”), signed by President Trump on March 18, 2020, two refundable payroll tax credits are available to small to midsize businesses to reimburse them, dollar-for-dollar, for the cost of providing COVID-19-related leave to their employees. The Act will apply to businesses with fewer than 500 employees in the form of two credits: Paid Sick Leave Credit and Child Care Leave Credit. Under the Act, employees of eligible employers are entitled to paid sick leave and paid child-care leave, and the employers are reimbursed immediately by not having to pay over previously withheld payroll taxes. If the withheld payroll taxes fail to cover the costs incurred by the employer, the business may file a request for an accelerated payment from the IRS. The IRS will release additional guidance in subsequent weeks on qualifying requirements.
Examples
If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.
If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.
Ability to Make Tax Free Payments to Employees
On March 13, 2020, President Trump declared the ongoing COVID-19 pandemic a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) effective March 1, 2020. Under section 139 of the Internal Revenue Code (the Code), the President’s declaration of a national emergency permits employers to provide employees with financial assistance in the form of qualified disaster relief payments that are not subject to federal taxation.
Employers may provide financial assistance to employees in connection with COVID-19, and the payments will not be subject to federal income tax or employment taxes (that is, social security, Medicare, and federal unemployment taxes), provided the requirements of Code section 139 are met (for example, expenses are not compensated for by insurance). The employer can deduct those payments as ordinary and necessary business expenses as if they were reported normally. There is no dollar limit on qualified disaster relief payments other than that they must be reasonable and necessary. Note that wage replacement, such as paid sick or other leave, is not covered by section 139 and cannot be provided tax-free. In addition, Code section 139 only addresses federal taxes, so state laws should be consulted to determine whether the qualified disaster relief payments are subject to any state taxes and withholdings.
Reed Smith LLP’s analysis of this notice can be found in our client alert, 'National emergency triggers opportunity for tax-free payments to employees'.
High Deductible Health Plans for Testing and Treatment of COVID-19 (IRS Notice 2020-15)
On March 11, 2020, the IRS released Notice 2020-15 addressing the use of High Deductible Health Plans to cover testing and treatment of COVID-19.
Reed Smith LLP’s analysis of this notice can be found in our client alert, 'IRS Permits HDHPs To Cover Coronavirus Treatment'.
The COVID-19 pandemic is a rapidly evolving and dynamic situation, making it difficult to forecast with certainly the additional measures the Treasury or the IRS will take going forward. However, the initiatives announced thus far prioritize financial relief for taxpayers rather than administrative relief. Reed Smith LLP will continue to track new developments and will provide additional insights into future Treasury and IRS actions and their impact on taxpayers.
Special thanks to Jennifer Frost and Justin Jennewine, students at the Georgetown University Law Center, for their valuable contributions to this Alert.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.
Client Alert 2020-154
