On March 27, President Trump signed another coronavirus (COVID-19) relief law titled the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Among other things, the CARES Act provides recovery rebates of up to $1,200 for singles and $2,400 for married couples filing jointly (plus $500 per qualifying child) subject to income-based phaseouts. It also waives the 10% penalty tax on early retirement account withdrawals for COVID-19-related distributions and temporarily waives the required minimum distribution rules for certain retirement accounts.
The CARES Act, which was signed into law on March 27, authorizes a $300 “above-the line” charitable tax deduction for individuals who don’t itemize. This will give a slight boost to taxpayers who donate to charity and the charities they donate to. The new law adds the deduction for tax years starting in 2020. For the last couple of years, under the Tax Cuts and Jobs Act, only individuals who itemized could get a deduction for charitable gifts, and far fewer individuals have been itemizing because of the increased standard deduction. The new deduction only applies to cash contributions. The contribution can’t be used to establish a donor-advised fund or maintain an existing one.
The IRS has published a list of answers to frequently asked questions about Notice 2020-18, which extended the filing deadline. These questions and answers will be updated periodically and are designed to be a flexible tool to communicate information to taxpayers and tax professionals in this changing environment. The list can be found here: https://bit.ly/33MxSHm
On March 18, 2020, President Trump signed the “Families First Coronavirus Response Act,’ which provides a wide variety of relief related to COVID-19. It includes employment-related protections and benefits and related employer tax credits and tax exemptions. The provisions of the Act are effective from April 1st, 2020 through December 31st, 2020.
Paid Leave Requirements
As part of the Act (HR 6201), employers of less than 500 employees must provide paid sick time and paid family leave, but they are eligible for a refundable payroll tax credit to offset the cost. In general, the Act mandates that covered employers must provide the following to all employees:
- Two weeks (up to 80 hours) of paid sick leave at the employee’s standard pay rate, up to a limit of $511 per day (or $5,110 over the full two weeks), if the employee is unable to work or telework for the following reasons:
- The employee is subject to a quarantine or isolation order related to COVID-19
- The employee has been advised by a health professional to self-quarantine
- The employee is experiencing symptoms of COVID-10 and is seeking a diagnosis
- Two weeks (up to 80 hours) of paid sick leave at two-thirds of the employee’s standard pay rate, up to a limit of $200 per day (or $2,000 over the full two weeks), if the employee is unable to work or telework for the following reasons:
- The employee is caring for an individual subject to a quarantine or isolation order related to COVID-19 or an individual advised by a health professional to self-quarantine
- The employee is caring for a son or daughter whose school has closed or whose child-car provider is unavailable
- The employee is experiencing a substantially similar condition specified by the Secretary of Health and Human Services
If the employee’s standard pay rate is below minimum wage, the pay rate used for paid sick leave must be at least minimum wage.
In addition, covered employers must also provide:
- Up to an additional 10 weeks of paid expanded family and medical leave at two-thirds of the employee’s standard pay rate, up to a limit of $200 per day (or $12,000 over the full 12-week period, which includes the first two weeks covered above) if the employee is unable to work or telework for the following reasons:
- The employee must care for a child under 18 years of age
- The employee must care for a son or daughter whose school has been closed or whose child-care provider is unavailable due to a public health emergency
However, employers with less than 50 employees may qualify for exemption from the requirement to provide leave due to school closings or child care unavailability if providing the paid leave would cause imminent harm to the business. For the expanded 10 weeks of pay, employees must have been employed by the employer for at least 30 days prior to going on leave.
Employers are prohibited from retaliating against employee for:
- Using leave under the Act or
- Bring an action against the employer under the ACT
Employers may not require an employee to find a replacement to cover his or her hours in order to take advantage of paid leave.
There is no minimum time that an employee must have been employed with the employer in order to qualify for paid leave under the Act.
Employers are required to post a notice regarding the act in conspicuous places on the employer’s premises – where notices are normally placed. The Department of Labor has posters available here: https://bit.ly/2QKuvem.
During the effective period between April 1st and December 31st, the employer may first use this special paid sick time, for which there is tax credit relief, before using other paid sick time available from the employer. The sick leave required by the Act does not replace any other sick leave or paid time off required from the employer by state law. In other words, it is in addition to — not a replacement for — normal paid time off, including paid sick time.
Tax Credit Relief
Employers who pay qualified leave will get a dollar-for-dollar credit through their 941 payroll taxes. Employers will still calculate federal withholding and both the employer and employee portions of FICA and Medicare tax. However, instead of remitting the tax as normal the withholding is used to cover the paid leave provided under the Act.
There has been some confusion on what tax is available to be retained by employers to cover the cost of paid leave. According to the IRS, the “payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.”
If the payroll tax does not cover the paid leave, the employer can have the excess refunded. The IRS has committed to sending refunds as quickly as possible when they are owed. We are still waiting for more information on how these expedited refunds will work. On the other hand, if the payroll tax is more than the paid leave provided, the excess payroll tax will still be required to be remitted.
The IRS provided the following 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.
Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
We are still waiting for the Department of Labor to weigh in on guidance for the implementation of the Act. As of the time of this writing, the Department of Labor had invited stakeholders to a national online dialogue on paid leave under the Families First Coronavirus Response Act: https://bit.ly/3dzwkEP. We will continue to update you as the situation unfolds.
For Further Reading:
Department of Labor 3/24 News Release: https://bit.ly/3amiYKf
Department of Labor 3/25 News Release: https://bit.ly/3dzwkEP
IRS Coronavirus Tax Relief Page: https://bit.ly/390RV5u
IRS 3/20 News Release: https://bit.ly/3a9XT5x
Please consider keeping your money right here in Yuma and helping local organizations. Both the federal and the Arizona individual income tax filing deadlines have been moved to July 15th for the 2019 tax year due to COVID-19. Although the filing deadline has moved, the deadline to contribute to qualifying organizations to claim a dollar-for-dollar 2019 Arizona tax credit remains April 15th.
Here is a list of the different Arizona credits, their limits, and local organizations that qualify:
2019 Arizona Tax Credits – Maximum Contribution for Married Filing Jointly (Other Status)
- Private School Tax Credit: Maximum $2,269 ($1,135):
- School Tuition Association of Yuma (STAY): https://bit.ly/2GlOEo8
- Foster Care Tax Credit: Maximum $1,000 ($500):
- Arizona Baptist Children’s Services: https://bit.ly/3aoi3cb
- Qualified Charitable Organization: Maximum $800 ($400):
We’ve been talking a lot about tax returns and tax payments that have a new deadline. It’s important that we also mention the ones that don’t. For example, the federal filing deadline for gift tax returns has not been changed. If you gave someone more than $15,000 in 2019, you’re required to file a gift tax return by April 15th. If you’ll need more time, you can request a 6-month extension of time to file the federal gift tax return. In addition to gift tax returns, tax returns from prior years that must be filed to claim a refund before the three-year window closes (2016 tax year) have not had their filing date moved.