Coronavirus (COVID-19) Resources
Election Day often brings out the wanderlust in people dissatisfied with the results; the 2020 election is no different. After a tough year, Americans are once again looking into living abroad.
There are currently 9 million U.S. expats living all over the world, a number that stands to grow after this election season as online searches on expat life surge 300 percent above the average. With rising coronavirus numbers in the U.S., combined with the new flexibility offered by remote work, Americans are more inclined than ever to give expat life a try.
While living abroad brings a new lifestyle and a rush of opportunities, it’s important to do the proper research, and consider the logistics and the tax consequences of living abroad, according to Katelyn Minott, a CPA, managing partner of Bright!Tax and currently a resident of Rio de Janeiro.
"The pandemic has created a situation in which many are finding they can work from wherever their computer might be," she said. "And it’s created a global business environment that allows people to travel and follow their heart’s desire to live abroad. But beyond the lifestyle implications of a move abroad, there are financial and tax considerations of a move that many don’t plan for before they pull the trigger on moving."
The most common misunderstanding is the idea that you don’t have to file a tax return from abroad, according to Minott. "Many who live abroad assume that leaving the U.S. and living outside its jurisdiction means no tax returns," she said. "But once they have the basic understanding that U.S. taxes are going to follow them wherever they may be, there are certain mechanisms to reduce and often eliminate U.S. tax. It’s also important to consider that the new country may also have local tax requirements that need to be met."
Many of the countries that are attractive to those looking to relocate have little to no tax, making for significant tax savings overall, Minott observed: "Someone in the British Virgin Islands or the Cayman Islands will be able to take advantage of the low taxes to achieve overall tax savings."
There is quite a bit of recordkeeping involved in properly preparing a U.S. tax return, Minott indicated. "For example, one of the mechanisms utilized to lower U.S. taxable income is the requirement that the taxpayer report their travel to and from the U.S. each year," she said. "There are a couple of ways to qualify for the foreign earned income exclusion. One involves being absent from the U.S. for 330 days during the year. It’s important to keep track of travel, foreign housing expenses, and income earned stateside versus offshore."
A big issue, with possible extremely negative unexpected consequences, is the obligation to report the maximum account balance held in foreign bank and financial accounts to the Treasury Department. The report is made on a Report of Foreign Bank and Financial Accounts, or FBAR, on FinCEN Form 114. A United States "person," including a citizen, resident, corporation, partnership, limited liability company, trust and estate must file an FBAR.
"There are big penalties for failure to do this," said Minott. "The penalties start at $10,000. There’s no reason to miss filing — it’s just a disclosure, it doesn’t yield a tax liability."
State residency is an issue that needs to be carefully examined, according to Minott. "Every U.S. state has different rules surrounding what would be a tax residence," she said. "Some, like California and New York, make it very challenging to break state residency when you’re moving abroad."
"As a result, many taxpayers choose to relocate to a different U.S. state before moving abroad," she said. "Many taxpayers relocate to a non-income-tax state prior to relocation abroad. Texas and Florida are the most popular as interim relocation states."
Not every taxpayer moves to a low or no-tax jurisdiction such as the British Virgin Islands or the Caymans, Minott observed. "Many taxpayers find themselves moving to countries where they do, in fact, have a tax obligation. In those circumstances where they do have a foreign tax obligation, there are also mechanisms to reduce U.S. tax, based on the foreign tax they already paid. More often than not, they won’t be in a double-tax situation thanks to the foreign earned income exclusion, foreign tax credit or a tax treaty in effect with their country of residency."
But for the many freelancers that are taking advantage of the ability to work from anywhere, the self-employment tax does not go away, Minott cautioned. "Unless the country has a totalization agreement with the U.S., the U.S. taxpayer will continue to pay self-employment tax to the IRS," she said.
"Many taxpayers choose to set up a business in their new country," Minott remarked. "This can generate a number of international disclosure requirements with the IRS. Holding a foreign corporation or a partnership interest can create a complex filing situation on the U.S. side. It’s vital that the expat understand the implications of those business interests prior to incorporating or setting up a foreign entity."
The SBA recently issued more new guidance relating to tax-favored loans under the Paycheck Protection Program – this notice concerns responsibilities and procedures when there is a change of ownership for a business entity that has received a PPP Loan.
According to the new SBA guidance, there is a change of ownership for these purposes when at least one of the following occurs:
- At least 20% of the common stock or other ownership interest of a PPP borrower is sold or transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity;
- The PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions; or
- The PPP borrower is merged with or into another entity.
Change of ownership does not absolve a borrower of responsibilities concerning their PPP loans. It continues to be responsible for:
- Performance of all obligations under the PPP loan;
- Certifications made under the PPP loan application, including the certification of economic necessity;
- Continued compliance with all other PPP loan requirements, and
- Obtaining, preparing and retaining the necessary forms and documentation and providing those forms and documents to the PPP lender, servicer or SBA upon request.
Under the procedural notice, a PPP borrower must notify its lender before it completes a change of ownership and provide documentation of the transaction. SBA approval may be required; the SBA has 60 days to review the submission and make a determination.
In addition, there are different procedures to be followed, depending on whether or not the PPP loan has been satisfied. If a loan hasn’t been satisfied, the borrower must establish an escrow account, controlled by the lender that includes the amount of the outstanding PPP loan balance. The escrow funds must be used first to repay any remaining PPP loan balance after forgiveness has been approved.
The new notice also addresses situations where the new business owner has a PPP loan of its own. It provides details for segregating PPP funds and expenses along with specifying the documentation required.
Recipients of Paycheck Protection Program (PPP) loans of $50,000 or less will be able to apply for forgiveness using a simplified application that was just released by Treasury and the U.S. Small Business Administration (SBA).
Under the interim final rules, PPP borrowers of $50,000 or less are exempted from any reductions in forgiveness based on:
- Reductions in full-time-equivalent (FTE) employees; and
- Reductions in employee salary or wages.
If you are an employee receiving PFL benefits, be aware the payments come from the state. If your employer participates in New York State’s Paid Family Leave program, you need to know the following:
The new application form, SBA Form 3508S, can be used by PPP borrowers applying for forgiveness on PPP loans with a total loan amount of $50,000 or less, unless those borrowers together with their affiliates received loans totaling $2 million or more. Instructions for Form 3508S also were released.
Of the 5.2 million PPP loans approved by the SBA, about 3.57 million were for $50,000 or less. Those loans accounted for about $62 billion of the $525 billion in PPP loans. About 1.71 million PPP loans of $50,000 or less were made to businesses that reported having zero employees or one employee.
The interim final rules streamline the forgiveness process for PPP borrowers of $50,000 or less because they will not be required to perform potentially complicated FTE or salary reduction calculations. Borrowers of $50,000 or less still will have to make some certifications and provide documentation to the lender for payroll and non-payroll costs.
For PPP loans of all sizes, the interim final rules also contain guidance on lender responsibilities with respect to the review of borrower documentation of eligible costs for forgiveness in excess of a borrower’s PPP loan amount.
According to the interim final rules, when a borrower submits Form 3508S or the lender’s equivalent form, the lender will be required to:
- Confirm receipt of the borrower certifications contained in the form; and
- Confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and non-payroll costs, as specified in the instructions to the form.
The borrower is responsible for providing an accurate calculation of the loan forgiveness amount. The borrower will attest to the accuracy of the reported information and calculations on the loan forgiveness application. Lenders are permitted to rely on borrower representations.
In addition, the guidance addresses what a lender should do if a borrower submits documentation of eligible costs that exceed the borrower’s PPP loan amount. According to the interim final rules, the amount of loan forgiveness that a borrower may receive cannot exceed the principal amount of the PPP loan.
Whether a borrower submits SBA Form 3508, 3508EZ, or 3508S, or a lender’s equivalent form, the lender is required to confirm receipt of the documentation the borrower is required to submit to aid in verifying payroll and non-payroll costs. If applicable, the lender also is required to confirm the borrower’s calculations on the loan forgiveness application, up to the amount required to reach the requested forgiveness amount.
Are medical expenses taking a bite out of your budget? This may be your last chance for deducting medical and dental expenses because the threshold for qualifying for deductions is set to revert to its higher level after 2020.
For 2020, the IRS allows all taxpayers to deduct the total qualified unreimbursed medical care expenses that exceeds 7.5% of their Adjusted Gross Income. Prior to that, ACA raised the bar to 10% of AGI (except for seniors). Subsequently, the Tax Cuts and Jobs Act returned the threshold to the 7.5% of AGI level for 2017 and 2018. Still with us? Extender legislation enacted by Congress late last year, called the Taxpayer Certainty and Disaster Tax Relief Act, restored the 7.5% of AGI limit for 2019 and 2020. And that’s where we stand now. There is no guarantee the threshold will not revert back to 10%, so try to take full advantage of the lower threshold for this year if you expect to itemize deductions. Make sure you count all the expenses that qualify for the deduction.
You can deduct payments for the diagnosis, cure, mitigation, treatment, or prevention of disease. You can also deduct payments for treatments affecting any structure or function of the body. Included are health insurance premiums and a portion of premiums paid for long-term care insurance (LTCI) policies based on the insured’s age. In addition:
- Fees for doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners
- In-patient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
- Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal if they require a prescription
- Expenses to participate in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician
- Insulin and prescription drugs
- Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
- Transportation needed to obtain necessary medical treatment such as fares for taxis, buses, trains and ambulances. If you use your own vehicle, you can deduct the portion of actual costs attributable to medical-based travel or use a standard rate. The standard rate, which is adjusted annually, is 17 cents per mile in 2020.
To claim the medical expenses deduction, you must itemize your deductions, which means you do not take the standard deduction. If your itemized deductions are greater than your standard deduction then it makes sense to claim the medical expenses deduction. If appropriate, you may want to schedule doctor and dentist visits before year end to clear the 7.5% of AGI threshold or boost an existing deduction. More details on eligible medical and dental expenses here: https://www.irs.gov/pub/irs-pdf/p502.pdf
Is your organization or some of its key employees working remotely? By now, the work should be flowing well and your employees should be transitioning nicely to performing their jobs at home. Everything probably seemed ok, up until your employees realized that according to the TCJA if they are employed they are not allowed to take the home office deduction. So now, many are most likely asking about reimbursement for cell phones, computers, and internet. This leads to the question, with more employees working remotely, how much of their business expenses can employers reimburse tax-free?
Employers may need to pay employees back for some infrastructure improvements they had to make so they could work remotely. If an employee had to upgrade their home internet service to handle extra data requirements, they may be entitled to reimbursement for those costs. An employer may have to cover the cost of upgrading or replacing a worker’s laptop that is ok for entertainment but too slow for work.
Under federal law, employers only have to reimburse employees if job-related expenses reduce their pay below minimum wage. State laws, however, vary widely in their reimbursement requirements.
Some Background: Listed property (technically, tax code Section 280F) is luxury property. If luxury property is used for business, heightened substantiation requirements apply. At one time, cell phones and computers were both listed property. Cell phones were removed early in the last decade. The TCJA removed computers and peripherals.
After cell phones, tablets, etc., were removed from the listed property category, the IRS released guidance waiving the accountable plan rules requirements for employer-provided equipment. Employees don't have to keep track of their business use. Their personal use is considered a tax-free de minimis fringe benefit.
The only limitation is that employers must have a substantial non-compensatory reason for providing phones to employees. But even there, the bar is set pretty low. You have a substantial non-compensatory business reason if you need to contact employees in a work-related emergency. Conveniently, "work-related emergency” was never defined.
Importantly, the IRS applied the same rules to employees who use their own phones for business. So, you can reimburse employees for their substantiated basic monthly phone and data plan charges (i.e., employees have to submit their bills to you) and employees don't have to account to you for the percentage of their business use.
With so many EEs working from home right now, are there any reimbursement rules that apply when employers pick up the tab for employees' internet access? The IRS never released similar guidance after computers and peripherals were removed. That has left everyone to guess what rules apply when employers reimburse employees who use their home internet access for business.
Reimbursement rules for internet and cell phones
The IRS Small Business Division says you can reimburse employees' home internet access as a business expense, but the regular accountable plan rules apply. The accountable plan rules, which set the rules for tax-free reimbursements of employees’ business expenses, require that:
- Employees incur expenses in connection with their performance of services for their employers and have a business connection for accessing the internet (working at home would suffice),
- Employees must substantiate their business use by submitting an accounting of their internet use by providing you with their cable or phone bill and the percentage used for business.
- Employees substantiate their expenses within a reasonable period of time
Due to the pandemic, cellphones become more and more essential to everyday operations and work, so the question about reimbursement for usage is fair.
When it comes to reimbursing employees or providing a monthly stipend for the use of their personal cellphones for business purposes, yes, this a non-taxable fringe benefit - provided that your reimbursement is reasonably calculated to actually reimburse the employees for the actual costs of maintaining the phone.
The Internal Revenue Code provides that gross income includes compensation for services, including fees, commissions, fringe benefits, and similar items. A fringe benefit provided by an employer to an employee is presumed to be income to the employee unless it is specifically excluded from gross income by another section of the Code. Luckily, the Internal Revenue Code also permits an employer to take deductions for any "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
So an employer could deduct as a business expense the costs of providing telephone services to its employees. For this reason, the IRS has concluded that the value of cellphone services provided by an employer will not be taxable to the employee if there are substantial reasons relating to the employer's business, and the reimbursement is not simply a way to provide tax-free compensation to the employee.
If you would like to reimburse workers for the cost of their cellphones, you need to adhere to the regular accountable plan rules mentioned above. However, if you provide cellphone reimbursements to boost morale, promote goodwill, or for recruiting purposes, the IRS will consider the phone costs taxable wages.
Sensitive company material and client information should not be stored on employees' personal computers. That makes buying your telecommuters separate laptops a wise investment. These are working condition fringe benefits, which you can provide to employees tax-free. Employees must be told they can only use the new devices for work; any personal use of a laptop is taxable.
Can you reimburse employees who need to purchase computer desks and chairs in order to work from home? These items could qualify as fringe benefits, but employees would have to keep track of their business and personal use, which isn't reasonable.
Instead it would be better to buy those items for employees but keep the items on the company's books. Depreciate them, as you would any business property, or write them off. If this is a long term move to reduce office space, you could allow employees to take their office stuff home. You must normally value and tax items employees take home, but if the value is de minimis because the stuff is old or been depreciated down to $0, you probably won't have a problem.
The New York State Department of Taxation and Finance provided guidance regarding the tax treatment of deductions from employee wages used to finance paid family leave premiums, and the tax treatment of Paid Family Leave (PFL) benefits to be received by eligible employees.
Background: Paid Family Leave Benefits, available to employees as of January 1, 2018, may be financed by deductions from wages under a formula set by the New York State Superintendent of Finance. Employers were permitted, but not required, to begin taking deductions from employee wages shortly thereafter.
If you are an employer subject to state-mandated paid family leave, you were probably wondering if employee contributions are taxable? The current states that mandate PFL (except for Washington D.C.) require employees to pay into the fund.
- Deducting the employee’s portion before withholding taxes means their contributions are not taxable (e.g., pre-tax deduction).
- Deducting the employee’s portion after withholding taxes means their contributions are taxable (e.g., post-tax deduction).
So, which is it? Are employee PFL contributions pre-tax or post-tax deductions?
After reviewing the paid family leave statute, the final regulations, applicable laws, case law and federal guidance, and after consulting with the Internal Revenue Service, the DOTF issued guidance stating essentially that employee PFL contributions are post-tax deductions, therefore their contributions are subject to taxes. Guidance for employers below:
- Premiums are to be deducted from employee's after-tax wages.
- Paid Family Leave Benefits paid to employees will be taxable, non-wage income that must be included in federal gross income.
- Taxes will not automatically be withheld from benefits. Employers should report employee contributions on an IRS Form W-2 using Box 14, State disability taxes withheld.
- Paid Family Leave Benefits should be reported by the New York State Insurance Fund (NYSIF) on IRS Form 1099-G and by all other payers (either private carriers or self-insured employers) on IRS Form 1099-Misc.
If you are an employee receiving PFL benefits, be aware the payments come from the state. If your employer participates in New York State’s Paid Family Leave program, you need to know the following:
- Any benefits you receive under this program are taxable and included in your federal gross income. However, PFL benefits are not subject to Social Security and Medicare taxes, or federal unemployment (FUTA) tax.
- Employers do not withhold taxes on an employee’s PFL benefits because they are not included in payroll. State governments do not automatically withhold paid family leave federal tax from an employee’s PFL benefits.
- An employee can request to have income taxes withheld by filing Form W-4V, Voluntary Withholding Request.
- You will receive either Form 1099-G or Form 1099-MISC from your employer showing your taxable benefits.
- Your employer will deduct premiums for the Paid Family Leave program from your after-tax wages.
- Your premium contributions will be reported to you by your employer on Form W-2 in Box 14 as state disability insurance taxes withheld.
These pandemic times have hit many family members hard. We all want to be generous to our kids and grandkids who are out of work, be helpful to that brother or sister that got the virus, and financially support our elderly parents in quarantine for their safety, BUT most folks do not realize what is involved in making a sizable loan to a loved one. Of course you expect to be repaid. But if there is no specific time for repayment and the loan carries no interest, are there tax consequences for giving cask to your kin? Yes indeed!
Some folks think they can give large amounts of money to their children and call it a loan to avoid the hassle of filing a gift tax return. The IRS is hard to fool. When you make a non-interest-bearing loan there are various tax consequences. The borrower is treated as having made interest payments to the lender, based on IRS-prescribed interest rates (around 2.35 to 2.70%) known as the Applicable Federal Rate. Unless the loan does not exceed $10,000, and the loan is not directly attributable to the purchase or carrying of an income-producing asset, then the interest rate can be below market and no imputed interest will be required to be calculated.
In the case of a parent-child loan, the imputed interest represents taxable income to the parent. Even though the parent will not actually receive any interest payments, the parent must nevertheless report the amount each year as taxable income on their personal income tax returns and pay tax on it. The parent has to file a gift tax return if the imputed interest exceeds the annual gift tax exclusion, which is $15,000 per donor. That can be doubled if a husband and wife each make such a gift, to $30,000 annually. Odds are you as the parent won’t have to pay a dime in gift tax, even if the loan amount—also known as a gift, for tax purposes—exceeds $15,000, or $30,000 if from a married couple. The amount is excluded from your lifetime gift tax exemption.
If gift tax consequences are a concern, have your child start paying interest to you each year until the loan is fully repaid. You can increase the loan amount to provide additional cash to your child to cover the interest payments. While the interest will still be subject to income tax, you can at least avoid the gift tax filing and any unintended use of your estate and gift tax exemption.
How to handle the paperwork for such loans and avoid tax traps? Appropriate documentation should be in place to establish the principal repayment obligation, otherwise the IRS might claim that the full amount of the loan you made was a gift.
- Create a promissory note or similar document setting up your loved one’s obligation to repay the loan to you.
- Set the rate at or above the Applicable Federal Rate (AFR) in effect when the loan is originated.
- Maintain records that reflect a true loan transaction, including timely payments.
If there is no specific repayment date, the promissory note can provide for payment to be made upon demand by you as lender. Hence, the debt will become due and required to be repaid when you choose. This way, you gain the flexibility of not being tied to a specific repayment schedule.
Do not have a prearranged schedule to forgive the loan. Forgiveness is okay as long as it is not expected or prearranged. If your loved one refuses to repay the loan to you, or dies before you, you can at least show you have a formal arrangement in place, and the transferred money was indeed a loan. That avoids complications.
One of the advantages of a loan contract is that if your child doesn’t pay, you can take a deduction for a non-business bad debt. Additionally, you don’t have to pay gift tax to the IRS on the amount like you would if you had gifted the money. To take a bad debt deduction, you must prove that you tried to collect the debt. The debtor should make a written statement that he or she cannot pay. The statement should also include a reason for why they are unable to make the payments.
HHS issued its long-awaited Provider Relief Fund (PRF) Reporting Requirements late in September. It specified the data that providers who received more than $10,000 in PRF payments will be required to submit as part of a post-payment reporting process. Providers should call their attention specifically to how HHS plans to calculate and limit the use of payments for lost revenues.
As part of the required reports, providers must report certain data for 2019 and 2020.
Healthcare related expenses attributable to Coronavirus: Providers will be expected to report expenses in two categories: general and administrative expenses, and healthcare related operating expenses. Providers are advised that only those expenses not reimbursed by other sources can be reported here. Providers who received between $10,000 and $499,999 in aggregate PRF payments can report their expenses in aggregate by category. However, providers receiving $500,000 or more in PRF payments will report their expenses in detail within each of the categories.
Lost revenues: This calculation becomes relevant if all PRF dollars received were not consumed by the COVID-19 healthcare related expenses. Lost revenues are defined as, “year-over-year net patient care operating income (i.e., patient care revenue less patient care related expenses for the Reporting Entity).” This approach is more limited than previous HHS guidance which permitted "any reasonable method of estimating lost revenue." Previously, providers could compare budgeted to actual, or use a year-over-year comparison. In addition, HHS appears to cap the application PRF payments toward lost revenues up to either:
- The amount of a provider’s 2019 net gain from healthcare related sources, or
- Up to a net zero gain/loss in 2020, if the provider reported negative net operating income in 2019.
- Calendar year expenses and revenues for each of the years;
- Other types of assistance received, such as Paycheck Protection Program funds, FEMA CARES Act dollars, state and local government assistance and other funds.
- Personnel Metrics such as total personnel by labor category, hire/re-hires, separations
- Patient Metrics including total number of admits, visits and residents.
- Facility Metrics like total available staffed beds.
Key dates to keep in mind:
- January 1, 2021: Opening the reporting system will not take place until early 2021.
- February 15, 2021: Deadline by which to submit a first report due for PRF expenditures through December 31, 2020
- July 31, 2021: Deadline by which to submit a second and final report for January 1 – June 30, 2021 revenues and expenditures.
The reporting guidance confirms that PRF payments can be used through June 2021. It is not clear if these timelines may shift should Congress appropriate additional dollars for the Provider Relief Fund. Note the public health emergency (PHE) has been extended another 90 days beyond October 23, 2020.
In addition to the reporting requirements, providers receiving more than $750,000 in federal awards, which include Provider Relief Funds, are subject to single audit requirements. More information here: https://www.hhs.gov/sites/default/files/post-payment-notice-of-reporting-requirements.pdf
Keep in mind: The IRS has confirmed that Provider Relief Fund payments cannot be excluded from taxation under a disaster relief exemption. Therefore, the payments do constitute gross taxable income, unless otherwise carved out under an existing exclusion, such as if the provider is a 501(c) nonprofit. Given that many healthcare providers may ultimately return unused payments from the Provider Relief Fund, taxpayers should be conscious of the tax consequences of payments received in one tax-year and returned in another year. Additionally, the guidance only applies for federal tax purposes so taxpayers should also consider the state and local tax treatment of the payments.
The financial challenges which Coronavirus brought forced companies to reimagine themselves and change how they do business to survive. Reducing your business income tax burdens has become more important than ever. Through the CARES Act, the government granted many forms of relief, so be sure that by December you are taking advantage of available tax changes that can provide liquidity.
- When the TCJA repealed the corporate AMT, it allowed corporations to claim all their unused AMT credits in the tax years beginning in 2018, 2019, 2020 and 2021. The CARES Act accelerates this timeline, allowing corporations to claim all remaining credits in either 2018 or 2019. The fastest method for many companies to get a quick refund will be filing a tentative refund claim on Form 1139, but you must file by December 31, 2020 to claim an AMT credit this way.
- The CARES Act also resurrected a provision allowing businesses to use current losses against past income for immediate refunds. Net operating losses (NOLs) arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These losses can even offset income at the higher tax rates in place before 2018. Consider opportunities to accelerate deductions into a loss year to benefit, but remember any non-automatic changes you want to make effective for the 2020 calendar year must be made by the end of the year. The fastest way to obtain a refund is generally by filing a tentative refund claim, but these must be filed by December 31, 2020, for the 2019 calendar year. If your losses will be in 2020, start preparing to file early because you cannot claim an NOL carryback refund until you file your tax return for the year.
- The CARES Act fixed a technical problem with bonus depreciation, a generous provision that allows companies to immediately deduct the full cost of many types of business investments. The legislation expands bonus depreciation to apply to a generous category of qualified improvement property (QIP). QIP is commonly thought of as a retail and restaurant issue, but it is much broader and applies to almost any improvement to the interior of a building that is either owned or leased. The fix is retroactive, so you can fully deduct qualified improvements dating back to January 1, 2018, which may offer relatively quick refunds. Taxpayers who filed 2018 and 2019 returns before the law changed can amend both the 2018 and 2019 returns to apply bonus depreciation for QIP in each of those years.
- The CARES Act allows employers to defer paying their 6.2% share of Social Security taxes for the rest of 2020. Half of the deferred amount is due by December 31, 2021, with the other half due by December 31, 2022. This provides a great liquidity benefit, but taxpayers should consider the impact on deductions before the end of the year. Businesses generally cannot deduct their share of payroll taxes until paid.
- The Cares Act increases the ceiling for business interest deductions from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. https://www.fuoco.com/component/content/article/596-cares-act-modifies-business-interest-deductions-
- Be sure you are fully taking advantage of Family Leave and Paid Sick Leave credits, as well as the Employee Retention Credit. If you need a credit “refresher” click the links below:
- https://www.fuoco.com/component/content/article/548-put-families-first-coronavirus-response-act-to-work-for-you (scroll to bottom of article for tax credit info)
You can’t predict the political future but you can plan for it! Here are some estate planning ideas for consideration based on uncertainty as to what proposed income tax law changes might be in 2021 and beyond. Keep in mind that due to fluctuating political winds there are also proposals on the table related to estate, gift and generation-skipping taxes. Many of these have been bandied about for a while now; we would be remiss if we did not mention them:
- Reduce the current estate and gift tax (and probably the generation-skipping tax) exemption from $11.58 million per person ($23.26 million for married couples) to an inflation adjusted $5.49 million per person ($10.98 million for married couples).
- Increase the current estate, gift and generation-skipping tax rates from a flat 40% to a progressive scale with rates from 40% to 77%.… or more.
- Limit the number of $15,000 annual exclusion gifts.
- Eliminate the use, or reduce the effectiveness, of valuation discounts.
- Eliminate the use, or reduce the effectiveness, of Intentionally Defective Grantor Trusts (“IDGT”) and Grantor Retained Annuity Trusts (“GRAT”).
- Eliminate the basis step-up at death.
- Impose a capital gains tax at death on unrealized gains.
Not all of these will have the same impact on every TFGFA client, but if any of them might be of particular concern to you in your situation, you may want to discuss your options before the end of 2020 in order to mitigate the effect on your portfolio and estate:
- Make gifts to use up some or all of your $11.58 million exemption. The IRS has already said that gifts in excess of a future reduced exemption amount will NOT be “clawed-back” for purposes of computing the estate tax on your estate. If you are a NY resident and survive the gift by three years, the gift will not be taken into account in computing the NY estate tax on your estate.
- Make gifts in excess of your $11.58 million exemption and pay a gift tax at a 40% rate. Unless you believe that the gift and estate taxes will be repealed, or that rates will be reduced, paying a gift tax is less expensive than paying an estate tax.
- If you are married and concerned that the gifts would reduce cash flow to an unacceptable level, consider creating a Spousal Lifetime Access Trust (“SLAT”) where one spouse uses his/her gift tax exemption to create a trust for the other spouse.
- Make gifts of other than cash or marketable securities in order to take advantage of valuation discounts.
- With interest rates at historical lows (the September Applicable Federal Rates (“AFR”) are 1% or less), make AFR loans to family members and/or create GRATs. See our prior article HERE.
The suggestions above are just the tip of the iceberg. There are additional estate planning tactics like putting your gifts into Intentionally Defective Grantor Trusts (“IDGTs”), and other options we would be happy to discuss with you.
Reach Out To Us: There is no crystal ball. However waiting until after the election, and the myriad delays promised due to the pandemic and the counting of the mail-in ballots, may prevent you from accomplishing what financial moves you might want to make before December 31st. Now is the time to set up, review, or to finalize your estate planning documents with your attorney, Fuoco Group accountants and your TFGFA financial advisory team all working in tandem.
Feel free to contact me, Paul Wieseneck, CPA, Senior Financial Advisor, at 561-209-1102, with any questions regarding financial planning for your estate. At TFGFA, we believe in customized investment portfolio design and personalized asset management.
Many clients are waiting for their tax refunds, even though they were filed well in advance of the July 15th deadline. Electronic filing generally yields a refund check in about three weeks. However, this is no ordinary tax season.
Due to COVID and staffing shortages, the IRS is extremely backlogged. If you are using the Where's My Refund link, and getting a "still being processed" message - that is actually good news. Remember that tax returns, even those filed electronically, may need additional review for a number of reasons.
For example, if you filed on the early side and claimed the EITC or the additional child tax credit (ACTC), you will have to wait a bit longer for your refund. Often a return needs review because of an uncommon deduction, or the claim appears excessive, or there may be suspected identity theft. Owe back taxes, or made a mistake on your direct deposit info? These reasons may be why there is a delay. If the IRS has questions or needs more information, you will receive a letter explaining what it requires to move forward.
You can try to call 800-829-1954. If that doesn’t help and it’s been 21 days since the return was accepted by the IRS, then call the general toll-free number 800-829-1040. Under normal circumstances, it can take some time to get to a live IRS representative. It’s a frustrating experience. You will probably face a long wait or be steered to electronic messages that provide little insight into why your refund is delayed.
The good news is, since the original Tax Day was postponed due to the pandemic, the IRS will pay up to 5% interest on refunds issued after April 15. But you must have filed by July 15th.
Beyond the PPP loans and EIDL $$$ we now have the little known Main Street Lending Program. It is the best kept secret for mid-size businesses in need of financial relief.
The Main Street program is one of a series of programs the Federal Reserve announced in April to provide up to $2.3 trillion in loans to households, businesses, non-profits, and state and local governments struggling to deal with the COVID-19 pandemic. Specifically, the Main Street program supports loans to U.S. companies with less than $2.5 billion in 2019 revenue that were in good financial standing before the COVID-19 crisis and subsequent quarantines stalled the American economy.
Bolstered by $75 billion in equity provided by Treasury through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Main Street program supports lenders that register for the program by purchasing 95% of each loan that meets eligibility and documentation requirements.
The Main Street program’s minimum loan size is $250,000, but this loan program geared for midsize businesses is also very different from others that have come before it because the debt must be repaid, and banks must retain some of the credit risk. Companies have five years to pay back the loans, and principal and interest are initially deferred.
A number of changes have been made to the program since its debut, to make it easier to apply.
Coronavirus stimulus prepaid cards mailed in plain envelopes are not junk mail, IRS cautions 'Please do not throw it away,' government pleads
The cards will arrive in a “plain envelope” from "Money Network Cardholder Services," the IRS said.
Unsuspecting individuals could mistake the envelope for junk mail or even a credit card promotion, especially since many people are likely not aware their payment will be arriving on a prepaid card instead of in the form of a check.
People cannot choose to have their payments sent this way. These 4 million individuals, who did not have direct deposit information on file with the tax agency, were selected by the Bureau of the Fiscal Service.
The Visa name appears on the front of the card, and MetaBank – the Treasury Department’s financial agent – appears on the bank. That may further confuse individuals who do not hold an account with Visa and who are unfamiliar with MetaBank.
“If you receive a card that looks like this, please do not throw it away,” the Consumer Financial Protection Bureau requested in an informational web video.
One sign you may have missed your card in the mail is if you receive a letter from the IRS, signed by President Trump, which details how much money you should have received.
These letters were expected to be sent two weeks after the economic impact payments.
So what should you do if you think you may have mistaken your prepaid card for junk mail?
One way you might want to address the issue is by calling the number at the bottom of the IRS letter, 800- 919-9835. The agency has recalled some staff who will be available to take phone calls.
Further, if you believe you threw the card away or misplaced it, you can also follow directions specifically for the prepaid cards, which will allow you to block unauthorized transactions as well.
The government provides information for people whose card is lost or stolen, which directs them to log in at EIPCard.com to block unauthorized transactions and call 1-800-240-8100 to report it.
A spokesperson for the IRS directed FOX Business to the aforementioned web page for the cards, adding that the agency had nothing further to add at this time regarding what taxpayers should do if they think they may have accidentally trashed their payment.
Economic Impact Payments being sent by prepaid debit cards, arrive in plain envelope; IRS.gov answers frequently asked questions
IR-2020-105, May 27, 2020 Article from IRS.gov >
WASHINGTON – As Economic Impact Payments continue to be successfully delivered, the Internal Revenue Service today reminds taxpayers that some payments are being sent by prepaid debit card. The debit cards arrive in a plain envelope from "Money Network Cardholder Services."
Nearly 4 million people are being sent their Economic Impact Payment by prepaid debit card, instead of paper check. The determination of which taxpayers received a debit card was made by the Bureau of the Fiscal Service, a part of the Treasury Department that works with the IRS to handle distribution of the payments.
Those who receive their Economic Impact Payment by prepaid debit card can do the following without any fees.
- Make purchases online and at any retail location where Visa is accepted
- Get cash from in-network ATMs
- Transfer funds to their personal bank account
- Check their card balance online, by mobile app or by phone
This free, prepaid card also provides consumer protections available to traditional bank account owners, including protection against fraud, loss and other errors.
Frequently asked questions continually updated on IRS.gov
The IRS has two sets of frequently asked questions to help Americans get answers about their Economic Impact Payments, including those arriving on prepaid debit card. These FAQs include answers to eligibility and other many common questions, including help to use two Economic Impact Payment tools.
Get My Payment, an IRS online tool, shows the projected date when a direct deposit has been scheduled or date when the payment will be mailed by check or prepaid debit card. The Non-Filers Enter Payment Info Here tool helps taxpayers successfully submit basic information to receive Economic Impact Payments quickly.
The IRS regularly updates the Economic Impact Payment and the Get My Payment frequently asked questions pages on IRS.gov as more information becomes available. Taxpayers should check the FAQs often for the latest additions.
Here are answers to some of the top questions people are asking about the prepaid debit cards:
Maybe. It depends on your prepaid card and whether your payment has already been scheduled. Many reloadable prepaid cards have account and routing numbers that you could provide to the IRS through the Get My Payment application or Non-Filers: Enter Payment Info Here tool. You would need to check with the financial institution to ensure your card can be re-used and to obtain the routing number and account number, which may be different from the card number. If you obtained your prepaid debit card through the filing of a federal tax return, you must contact the financial institution that issued your prepaid debit card to get the correct routing number and account number. Do not use the routing number and account number shown on your copy of the tax return filed. When providing this information to the IRS, you should indicate that the account and routing number provided are for a checking account unless your financial institution indicates otherwise.
Some payments may be sent on a prepaid debit card known as The Economic Impact Payment Card The Economic Impact Payment Card is sponsored by the Treasury Department's Bureau of the Fiscal Service, managed by Money Network Financial, LLC and issued by Treasury's financial agent, MetaBank®, N.A.
If you receive an Economic Impact Payment Card, it will arrive in a plain envelope from "Money Network Cardholder Services." The Visa name will appear on the front of the Card; the back of the Card has the name of the issuing bank, MetaBank®, N.A. Information included with the Card will explain that the card is your Economic Impact Payment Card. Please go to EIPcard.com for more information.
Not at this time. For those who don't receive their Economic Impact Payment by direct deposit, they will receive their payment by paper check, and, in a few cases, by debit card. The determination of which taxpayers receive a debit card will be made by the Bureau of the Fiscal Service (BFS), another part of the Treasury Department that works with the IRS to handle distribution of the payments. BFS is sending nearly 4 million debit cards to taxpayers starting in mid-May. At this time, taxpayers cannot make a selection to receive a debit card. Please go to EIPcard.com for more information.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information. Remember, go directly and solely to IRS.gov for official information.
Quick links to the Frequently Asked Questions on IRS.gov:
- While most states have yet to comment on whether taxpayers can deduct ordinary business expenses paid with Paycheck Protection Program (PPP) loan proceeds that are forgiven by the IRS, taxpayers should monitor state conformity to the CARES Act (P.L. 116-136) and the Internal Revenue Code.
- Rolling conformity states that conform to the CARES Act will not tax or include as gross income any forgiveness amount associated with the PPP. As such, it is likely that these states will also follow the federal treatment that disallows expense deductions associated with any forgiven PPP loan amount.
- Taxpayers should also be aware of the introduction of measure S.3612, which seeks to establish that coronavirus assistance, whether forgiven or repayable, will not affect the treatment of ordinary business expenses.
PPP Expense Deductions
As a part of the CARES Act (Sec. 1102), the Small Business Administration (SBA) made available PPP loans, for the purpose of helping businesses keep their workforce employed during the COVID-19 pandemic. The SBA would not require repayment of the loan if a business kept employees on its payroll for eight weeks and used the loan money for payroll, rent, mortgage interest, or utilities, with 75% of the loan amount forgiven being used for payroll. While loans that are forgiven would normally be considered cancellation of debt income, the CARES Act specifically states in Sec. 1106(i) that any forgiven loan amount will be excluded from gross income.
The IRS has issued Notice 2020-32 to provide guidance regarding the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s business when the taxpayer receives a PPP loan. Notice 2020-32 states that “no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.”
Therefore, currently, to the extent that any PPP loan is forgiven and excluded from a taxpayer’s gross income, the taxpayer will not be entitled to deduct ordinary and business expenses that were paid by the forgiven loan proceeds.
Most states have been silent in regards to whether they conform to the CARES Act and follow the federal treatment of excluding forgiven loan proceeds as gross income and disallowing expense deductions associated with PPP loan proceeds. However, it is likely that rolling conformity states that automatically conform to the IRC, such as Massachusetts or New Jersey, will conform to the CARES Act and will also follow the federal treatment of excluding forgiven PPP loans from gross income and disallowing expense deductions associated with any forgiven PPP loan amount.
However, states that have static conformity provisions that do not conform to the CARES Act, such as California (conforms to the IRC as of January 1, 2015), will likely not follow the federal treatment regarding forgiven PPP loan proceeds and related expenses. In these non-conforming states, any forgiven loan proceeds will likely be included as income for state purposes. States that do include forgiven PPP loan proceeds as income will likely allow expense deductions for ordinary expenses funded by the PPP loans.
Small Business Expense Protection Act of 2020 (S. 3612)
On May 5, 2020, the Small Business Expense Protection Act of 2020 (S. 3612) was introduced to the Senate. This bipartisan legislation clarifies that ordinary expenses that are backed by PPP loan proceeds will be deductible as normal ordinary expenses. This bill, if passed, will reverse the federal treatment of disallowing ordinary expense deductions that are funded by PPP amounts as stated in Notice 2020-32.
The lawmakers that introduced S.3612 believe its passage is necessary to achieve the PPP’s true goal of providing relief to small businesses affected by the COVID-19 pandemic. Specifically, the lawmakers stated that, “Providing assistance to small businesses, only to disallow their business deductions as provided in Notice 2020-32, reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.”
If S.3612 is to become law, a rolling conformity analysis will likely not need to be conducted in order to determine if states will allow expense deductions funded by PPP loan proceeds, as federal preemption will require states to allow for the deduction. Currently S.3612 has been introduced to the Senate and assigned to the Senate Committee on Finance. The next step is for the Committee to send the bill to the Senate floor for debate or a subcommittee for further research. If it does go to the Senate floor and receives a majority vote, the bill will move to the House of Representatives for a similar process of committees, debate and voting. Once both houses approve the final bill, it will go to the President for signature or veto.
For specific guidance regarding state-specific treatment pertaining to the PPP and related expenses, see Armanino’s COVID-19 Relief Matrix.
Taxpayers who have received PPP loans and satisfied the conditions necessary to result in partial or full forgiveness of the loan amount must determine whether they are able to deduct the ordinary business expenses that they paid with their PPP loan proceeds. Absent any specific comment from the states regarding these expense deductions, a conformity analysis should be done to determine whether a state conforms to the CARES Act and the IRC generally.
If a state conforms to the CARES Act, the states will follow the current federal treatment to exclude any forgiven PPP amount from gross income and disallow any deduction for any associated expenses. While the federal treatment currently disallows PPP expense deductions associated with forgiven loan amounts, new measures and proposals will likely result in expense deductions associated with PPP being allowed at a later time.
Also keep an eye on S. 3612 to see whether it becomes law and thereby allows taxpayers to take the ordinary expense deductions paid for by PPP loans. This bill is just in the first stage of the legislative process – so stay tuned!
The House passed the Paycheck Protection Program (PPP) Flexibility Act (HR 7010) on May 28th with an overwhelming bipartisan vote. The Bill was sponsored by Rep. Chip Roy (R-TX) and included a few key changes:
- Extending loan repayment period from 2 to 5 years;
- Extending the Covered Period to 24 weeks or December 31, 2020 (which means any loan funded by July 17, 2020);
- Revising the percentage of forgivable spend on non-payroll costs; and
- Allowing payroll tax deferrals even with loan forgiveness.
It is important to note that passage of the law in the House does not mean these changes have become the law. Ultimately, the Senate will need to take up the matter, approve it and forward to the President for signature. Until those steps are taken, the PPP program and guidance remain unchanged despite the House bill.
The Senate is currently considering several bills to amend PPP, so the details of what, if anything, ultimately gets signed into law may change.
In addition, the House generally voted along party lines against the Public Disclosure of COVID Recovery Loans (Truth Act, HR 6782) that would have required the SBA to publish significant identifying information about borrowers and lenders.
We continue to monitor the ongoing PPP legislative proposals and will provide updates as they arise.
IR-2020-97, May 18, 2020 From IRS.gov >
WASHINGTON — Today, the Internal Revenue Service is starting to add 3,500 telephone representatives to answer some of the most common questions about Economic Impact Payments.
IRS telephone assistance and other services will remain limited, and answers for most of the common questions related to Economic Impact Payments are available on IRS.gov. The IRS anticipates bringing back additional assistors as state and local advisories permit.
Answers for most Economic Impact Payment questions are available on the automated message for people who call the phone number provided in the letter (Notice 1444). Those who need additional assistance at the conclusion of the message will have the option of talking to a telephone representative.
Americans are encouraged to use IRS.gov
The IRS regularly posts new and updated answers to the most frequently asked questions about Economic Impact Payments and the Get My Payment tool. Those who wish to know the status of their Economic Impact Payment are reminded to check Get My Payment regularly; the information is frequently updated as the IRS continues to process the remaining payments for delivery.
For those who are eligible for an Economic Impact Payment but aren't required to file a tax return, the IRS reminds them the Non-Filers tool also remains available in English or Spanish for them to register for a payment.
Tax Tip 2020-56, May 13, 2020 From IRS.gov >
Due to COVID-19, the IRS' People First Initiative provides relief to taxpayers on a variety of issues from easing payment guidelines to delaying compliance actions. This relief is effective through the filing and payment deadline, Wednesday, July 15, 2020.
- Existing Installment Agreements –Under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are delayed. Those currently unable to meet the terms of an Installment Payment Agreement or Direct Deposit Installment Agreement may cancel payments during this period with no default. By law, interest will continue to accumulate on any unpaid balances.
- New Installment Agreements – People who can't pay all their federal taxes can establish a monthly payment agreement.
- Pending Offer in Compromise applications – Taxpayers have until July 15, 2020, to provide additional information for a pending OIC. The agency generally won't close any pending OIC request before July 15 without the taxpayer's consent.
- OIC payments – Taxpayers can delay all payments on accepted OICs until July 15, 2020. Interest may accrue, and missed payments are due when the suspension period ends. Taxpayers can call the number on their acceptance letter to address their needs.
- Delinquent return filings – The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for 2018. However, they should file any delinquent 2018 return and their 2019 return by July 15, 2020.
- Non-filers – More than 1 million households who haven't filed tax returns in the last three years are owed refunds. The deadline to get refunds on 2016 tax returns is July 15, 2020. Those who owe taxes on delinquent returns may visit IRS.gov for payment options. The longer the debt is owed, the more penalties and interest accrue.
- Field collection activities – IRS stopped field revenue officer enforcement actions, such as liens and levies. Revenue officers will continue to pursue high-income non-filers and perform other similar activities where necessary.
- Automated liens and levies – IRS delayed issuing new automated and systemic liens and levies. Taxpayers experiencing a hardship due to a levy should reach out to their assigned IRS contact or fax their information to 855-796-4524.
- Certifications to the State Department – IRS has delayed new certifications of taxpayers who are considered seriously delinquent. This affects a person's ability to receive a new or renewed passport. Existing certifications will remain in place unless their tax situation changes.
- Private debt collection – IRS will not forward new delinquent accounts to private collection agencies during this period.
May 12, 2020 From IRS.gov >
IRS.gov has answers to many questions people may have about their Economic Impact Payment. Here are answers to some of the top questions people are asking about these payments.
Is this payment considered taxable income?
No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.
Can people who receive a Form SSA-1099 or RRB-1099 use Get My Payment to check their payment status?
Yes, they will be able to use Get My Payment to check the status of their payment after verifying their identity by answering the required security questions.
If someone's bank account information has changed since they filed their last tax return, can they update it using Get My Payment?
To help protect against potential fraud, the tool also does not allow people to change direct deposit bank account information already on file with the IRS.
If the IRS issues a direct deposit based on the account information that the taxpayer provided on their tax return and the bank information is now invalid or the account has been closed, the bank will reject the deposit. The agency will then mail payment as soon as possible to the address they have on file. Get My Payment will be updated to reflect the date a payment will be mailed. It will take up to 14 days to receive the payment, standard mailing time.
Where can people get more information?
Taxpayers who are required to file a tax return, can go to IRS Free File to file electronically. If they aren't required to file, they should go to the Non-Filers: Enter Payment Info Here tool and submit their information to receive an Economic Impact Payment.
The IRS encourages people to share this information with family and friends.
May 11, 2020 From IRS.gov >
WASHINGTON — The IRS and Treasury have successfully delivered nearly 130 million Economic Impact Payments to Americans in less than a month, and more are on the way. Some Americans may have received a payment amount different than what they expected. Payment amounts vary based on income, filing status and family size.
See below for some common scenarios that may explain why you received a different payment amount than expected:
You have not filed a 2019 tax return, or the IRS has not finished processing your 2019 return
Payments are automatic for eligible people who filed a tax return for 2018 or 2019. Typically, the IRS uses information from the 2019 tax return to calculate the Economic Impact Payment. Instead, the IRS will use the 2018 return if the taxpayer has not yet filed for 2019. If a taxpayer has already filed for 2019, the agency will still use the 2018 return if the IRS has not finished processing the 2019 return. Remember, the IRS accepting a tax return electronically is different than completing processing; any issues with the 2019 return mean the IRS would've used the 2018 filing.
If the IRS used the 2018 return, various life changes in 2019 would not be reflected in the payment. These may include higher or lower income or birth or adoption of a child.
In many cases, however, these taxpayers may be able to claim an additional amount on the 2020 tax return they file next year. This could include up to an additional $500 for each qualifying child not reflected in their Economic Impact Payment.
Claimed dependents are not eligible for an additional $500 payment
Only children eligible for the Child Tax Credit qualify for the additional payment of up to $500 per child. To claim the Child Tax Credit, the taxpayer generally must be related to the child, live with them more than half the year and provide at least half of their support. Besides their own children, adopted children and foster children, eligible children can include the taxpayer's younger siblings, grandchildren, nieces and nephews if they can be claimed as dependents. In addition, any qualifying child must be a U.S. citizen, permanent resident or other qualifying resident alien. The child must also be under the age of 17 at the end of the year for the tax return on which the IRS bases the payment determination.
A qualifying child must have a valid Social Security number (SSN) or an Adoption Taxpayer Identification Number (ATIN). A child with an Individual Taxpayer Identification Number (ITIN) is not eligible for an additional payment.
Parents who are not married to each other and do not file a joint return cannot both claim their qualifying child as a dependent. The parent who claimed their child on their 2019 return may have received an additional Economic Impact Payment for their qualifying child. When the parent who did not receive an additional payment files their 2020 tax return next year, they may be able to claim up to an additional $500 per-child amount on that return if they qualify to claim the child as their qualifying child for 2020.
Dependents are college students
Pursuant to the CARES Act, dependent college students do not qualify for an EIP, and even though their parents may claim them as dependents, they normally do not qualify for the additional $500 payment. For example, under the law, a 20-year-old full-time college student claimed as a dependent on their mother's 2019 federal income tax return is not eligible for a $1,200 Economic Impact Payment. In addition, the student's mother will not receive an additional $500 Economic Impact Payment for the student because they do not qualify as a child younger than 17. This scenario could also apply if a parent's 2019 tax return hasn't been processed yet by the IRS before the payments were calculated, and a college student was claimed on a 2018 tax return.
However, if the student cannot be claimed as a dependent by their mother or anyone else for 2020, that student may be eligible to claim a $1,200 credit on their 2020 tax return next year.
Claimed dependents are parents or relatives, age 17 or older
If a dependent is 17 or older, they do not qualify the additional $500. If a taxpayer claimed a parent or any other relative age 17 or older on their tax return, that dependent will not receive a $1,200 payment. In addition, the taxpayer will not receive an additional $500 payment because the parent or other relative is not a qualifying child under age 17.
However, if the parent or other relative cannot be claimed as a dependent on the taxpayer's or anyone else's return for 2020, the parent or relative may be eligible to individually claim a $1,200 credit on their 2020 tax return filed next year.
Past-due child support was deducted from the payment
The Economic Impact Payment is offset only by past-due child support. The Bureau of the Fiscal Service will send the taxpayer a notice if an offset occurs.
For taxpayers who are married filing jointly and filed an injured spouse claim with their 2019 tax return (or 2018 tax return if they haven't filed the 2019 tax return), half of the total payment will be sent to each spouse. Only the payment of the spouse who owes past-due child support should be offset.
The IRS is aware that a portion of the payment sent to a spouse who filed an injured spouse claim with his or her 2019 tax return (or 2018 tax return if no 2019 tax return has been filed) may have been offset by the injured spouse's past-due child support. The IRS is working with the Bureau of Fiscal Service and the U.S. Department of Health and Human Services, Office of Child Support Enforcement, to resolve this issue as quickly as possible. If you filed an injured spouse claim with your return and are impacted by this issue, you do not need to take any action. The injured spouse will receive their unpaid half of the total payment when the issue is resolved. We apologize for the inconvenience this may have caused.
Garnishments by creditors reduced the payment amount
Federal tax refunds, including the Economic Impact Payment, are not protected from garnishment by creditors by federal law once the proceeds are deposited into a taxpayer's bank account.
What if the amount of my Economic Impact Payment is incorrect?
Everyone should review the eligibility requirements for their family to make sure they meet the criteria.
In many instances, eligible taxpayers who received a smaller-than-expected Economic Impact Payment (EIP) may qualify to receive an additional amount early next year when they file their 2020 federal income tax return. EIPs are technically an advance payment of a new temporary tax credit that eligible taxpayers can claim on their 2020 return. Everyone should keep for their records the letter they receive by mail within a few weeks after their payment is issued.
When taxpayers file their return next year, they can claim additional credits on their 2020 tax return if they are eligible for them. The IRS will provide further details on IRS.gov on the action they may need to take.
The EIP will not reduce a taxpayer's refund or increase the amount they owe when they file a tax return early next year. It is also not taxable and is therefore should not be included in income on a 2020 return.
Act by Wednesday for chance to get quicker Economic Impact Payment; timeline for payments continues to accelerate
May 8, 2020 From IRS.gov >
WASHINGTON – With a variety of steps underway to speed Economic Impact Payments, the Treasury Department and the Internal Revenue Service urged people to use Get My Payment by noon Wednesday, May 13, for a chance to get a quicker delivery.
The IRS, working in partnership with Treasury Department and the Bureau of Fiscal Services (BFS), continues to accelerate work to get Economic Impact Payments to even more people as soon as possible. Approximately 130 million individuals have already received payments worth more than $200 billion in the program's first four weeks.
Starting later this month, the number of paper checks being delivered to taxpayers will sharply increase. For many taxpayers, the last chance to obtain a direct deposit of their Economic Impact Payment rather than receive a paper check is coming soon. People should visit Get My Payment on IRS.gov by noon Wednesday, May 13, to check on their payment status and, when available, provide their direct deposit information.
"We're working hard to get more payments quickly to taxpayers," said IRS Commissioner Chuck Rettig. "We want people to visit Get My Payment before the noon Wednesday deadline so they can provide their direct deposit information. Time is running out for a chance to get these payments several weeks earlier through direct deposit."
After noon Wednesday, the IRS will begin preparing millions of files to send to BFS for paper checks that will begin arriving through late May and into June. Taxpayers who use Get My Payment before that cut-off can still take advantage of entering direct deposit information.
How Get My Payment works
The Get My Payment tool provides eligible taxpayers with a projected Economic Impact Payment deposit date. The information is updated once daily, usually overnight. There is no need to check more than once a day. Taxpayers who did not choose direct deposit on their last tax return can use this tool to input bank account information to receive their payment by direct deposit, expediting receipt.
Non-Filers portal remains available
For those not required to file a federal tax return, the Non-Filers: Enter Payment Info Here tool helps them submit basic information to receive an Economic Impact Payment quickly to their bank account. Developed in partnership between the IRS and the Free File Alliance, this tool provides a free and easy option for those who don't receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI) and VA Compensation and Pension (C&P) benefits. The Non-Filers tool is also available in Spanish.
Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically. Automatic payments will also be sent to those receiving Social Security retirement, disability benefits, Railroad Retirement benefits, Veterans Affairs benefits or Supplemental Security Income soon.
Watch out for scams related to Economic Impact Payments
The IRS urges taxpayers to be on the lookout for scams related to the Economic Impact Payments. To use the new app or get information, taxpayers should visit IRS.gov. People should watch out for scams using email, phone calls or texts related to the payments. Be careful and cautious: The IRS will not send unsolicited electronic communications asking people to open attachments, visit a website or share personal or financial information.
Stay informed with Economic Impact Payment FAQs; Social Media platforms
Taxpayers should check the Frequently Asked Questions (FAQs) for more information.
COVID Tax Tip 2020-53, May 7, 2020 From IRS.gov >
Small and midsize employers can claim two new refundable payroll tax credits. The paid sick leave credit and the paid family leave credit are designed to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees.
Here are some key things to know about these credits.
Paid sick and family leave
For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave when they are sick or caring for someone else who is, and up to 10 weeks of paid family leave when their children's schools or place of care are closed, or child care providers are unavailable due to COVID-19.
- Employers receive 100% reimbursement for required paid leave.
- Health insurance costs are also included in the credit.
- Employers do not owe their share of social security tax on the paid leave and get a credit for their share of Medicare tax on the paid leave.
- Self-employed individuals receive an equivalent credit.
- Reimbursement will be quick and easy.
- The credit provides a dollar-for-dollar tax offset against the employer's payroll taxes
- The IRS will send any refunds owed as quickly as possible.
To take immediate advantage of the paid leave credits, businesses should use funds they would otherwise pay to the IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, employers can request an expedited advance from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
For details about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov.
May 7, 2020 From IRS.gov >
WASHINGTON — The Internal Revenue Service today reminds employers affected by COVID-19 about three important new credits available to them.
Employee Retention Credit:
The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.
Qualifying employers must fall into one of two categories:
- The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Employers will calculate these measures each calendar quarter.
Paid Sick Leave Credit and Family Leave Credit:
The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.
The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee's regular rate of pay or, up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
How will employers receive the credit?
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
PDF download of a comprehensive 15 page FAQ regarding questions about the PPP program. Download the below document to read.
The Paycheck Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. Download for more information.