Tax relief measures for small businesses during the coronavirus pandemic

Tax relief measures for small businesses during the coronavirus pandemic

by | Mar 21, 2020 | COVID - 19, federal government, global income tax, income tax credit, Investment & Income, Tax credits, tax deadline, Tax exemption, Tax Extension, tax filing, Tax Payers, Tax Refund, taxes, US Government

Tax relief measures for small businesses

during the coronavirus pandemic

The entire nation has been affected by the dreadful coronavirus. The rapid spread of the COVID-19 across the country has affected the economy on a very massive scale. The business operation across the country has come to a standstill especially in the case of small businesses that are tax relief measures. Social distancing and quarantining have led to a decrease in the number of customers coming to purchasing impacting sales. Numbers of employees are also not going on work as everyone is forced to stay inside for preventing further spread of the disease. In such adverse situations where there are huge economic disruptions, the Government is working towards passing legislation that would help in providing financial relief to the businesses and taxpayers.

The Families First Coronavirus Response Act

On March 13th, 2020, President Trump had declared a situation of national emergency along with open access of States and Territories to $50 billion for the shared fight against the disease. Again on 18th March 2020, the Senate had passed the Families First Coronavirus Response Act. This bill was signed by the President on that day which included the below-mentioned highlighted points.

1.Federally mandated paid leave benefits and paid sick leave are to be provided to the eligible employees. The paid sick leave must be provided to the impacted employees for 14 days at the regular rate of pay i.e. max $511 per day. Moreover, employers should also provide the benefits of paid leave to the eligible employees for three months.

2.The availability of tax credits for both employers and self-employed taxpayers have been mandated to reduce the burden of employers arising due to the paid leave

 

Extension in tax payment and tax return filing deadline

The US Treasury Department and the IRS had announced that the deadlines for filing tax returns and tax payments that are due on 15th April 2020 are extended up to 15th July 2020. This extension is applicable for making filing tax returns for 2019, Income Tax payments for 2019 and the estimated income tax payments for 2020.

If there is a tax refund due, then the Income tax returns must be filed as soon as possible so that the refund can be obtained immediately and put to use in this time of crisis.

 

Low-interest loans guaranteed by the SBA

 

When there is a tremendous drop in sales, it becomes quite difficult to manage business expenses, employee wages, bills, etc. In such a situation, a business loan can be taken but then it will have a very high rate of interest. So, to ease down these worries the President has announced that the Government would provide more funds in the federal disaster loans which are backed by the Small Business Administration (SBA).  The loans provided by the SBA are known as the Economic Injury Disaster Loan.These loans would help in providing relief for the qualifying businesses in the below-mentioned forms.

 

  1. Loans at low-interest rates i.e. 3.75% for businesses and 2.75% for non-profit organizations.
  2. Repayment plans are long term in nature i.e. up to a maximum period of 30 years.

If a small business is facing financial issues and is not able to afford bills related to the payroll expenses, fixed debts and accounts payable then it can apply for an “Economic Injury Disaster Loan”.

 

Moreover, the federal and state financial regulators have been encouraging the financial institutions to work in a co-operative manner with those borrowers who belong to the affected communities.

Cash Payment by the Government

Another measure taken by the Government to provide relief to the small businesses is by providing the Stimulus package. Under this package, stimulus checks would be provided to US adults. On 27th March 2020, President Trump signed the CARES Act into law.

By this Act, cash payments would be provided to adult taxpayers up to $1200 for a single person and up to $2400 for couples. If there is a child, then the amount of the stimulus cheque will include an additional $500.

Those individuals who have earned $75,000 in the adjusted gross income (AGI) on the Income-tax returns of 2018 will be receiving a lower amount. Also, those individuals who do not have a federal tax liability will receive $600 under this proposal.       

 

Deferment of

any amount

The IRS has also announced any amount can be deferred related to the Federal tax.  In the Notice 2020-18, the IRS had stated that “there is no limitation on the amount of payment that may be postponed”. Previously, there was a dollar limit on the tax that can be deferred but later on 21st March 2020 this limit has been withdrawn.

This deferment or the postponement of tax payment has only been announced for the federal taxes and is not applicable for any other tax like excise taxes and payroll taxes.

Conclusion

Hence, the various legislations and implementations of new tax laws would be helpful for small business owners to avoid sleepless nights due to tax payments in times of low sales and disrupted business.

References

https://ssfllp.com/coronavirus-covid-19-tax-relief-for-small-businesses/

https://www.patriotsoftware.com/blog/payroll/small-business-relief-coronavirus-pandemic/

 

Families First Coronavirus Response Act: The new coronavirus relief bill

Families First Coronavirus Response Act: The new coronavirus relief bill

by | Mar 19, 2020 | CARES, coronavirus relief bill, COVID - 19, Emergency FMLA, Emergency paid sick leave act, federal income tax, FFCRA, FMLA, global income tax, Tax credits, Tax exemption, Tax Extension, taxes, US Government

Families First Coronavirus Response Act:

The new coronavirus relief bill

The Families First Coronavirus Response Act has been signed by the US President on 18th March 2020 to provide additional relief for those taxpayers who have been affected by the COVID-19. This Act is applicable for all categories of taxpayers such as individuals, self-employed and business entities as well. This new law would be effective starting from 1st April 2020 till 31st December 2020.

There are several provisions included under this legislative package such as free coronavirus testing, food assistance, increase in medical service budget, etc. However, there are four major aspects of the Family First Coronavirus Response Act that apply to businesses.  These major aspects include provision for employers to offer paid sick leave, paid family leave and medical leaves, tax credits for the paid leave and the expansion of the insurance related to unemployment.

Emergency Family and Medical

  Leave Expansion Act (FMLA)

By this guideline, until the end of December 2020 employers who have a workforce consisting of less than 500 employees must provide their employees with a paid FMLA of up to 10 weeks. The first two weeks of the general 12-week FMLA leave might be unpaid but the employee might be able to be paid by the provision of paid sick leave.

Eligibility for FMLA

Paid FMLA can be availed by an employee who has been employed for at least 30 days and must be taking care of the minor children whose school or child care center has been closed due to the outbreak of COVID-19. An employee who is eligible to obtain FMLA must not be working or even working remotely while taking care of the children.

Payment of employees

during this time

The employers would provide employees unpaid leave for 10 days. Then, the concept of paid leave arises and the employees can receive compensation at two-thirds of their normal rate. The paid leave cannot be more than $200 per day and $10,000 total for a period of full 10 weeks.

Exemptions 

Businesses that have less than 50 employees can be exempted from all these provisions if they can prove that by providing the Emergency Family and Medical leave they would be risking to go out of their business. 

Employees working in health care organizations or emergency services can be excluded from the emergency FMLA due to the outbreak of COVID-19.

 

 

Businesses having fewer than 50 employees are exempted from any civil actions that are brought by employees for creating violations regarding emergency FMLA.

 

Emergency Paid Sick Leave Act 

This is another leave provision of the Families First Coronavirus Response Act which would be effective till the end of December 2020. Employers having fewer employees than 500 should offer paid sick leave to those who meet the criterion associated with a public health emergency.

Eligibility for Emergency Paid Sick Leave

 

This would be available for all those employees who are unable to work due to the below-mentioned circumstances.

  1. Federal, State or even local quarantine due to COVID-19.
  2. Being advised by the doctor to be self-quarantined due to COVID-19.
  3. Experiencing some symptoms of COVID-19 and under medical supervision

4.Taking care of a family member who has been advised for quarantine

5. Caring for minor children if their schools, child care centers are closed or their caretaker is not available due to COVID-19.

Payment of employees

during this time

1.Full-time employees would receive up to 80 hours of paid sick leave whereas part-time employees can receive paid sick leave based on the number of hours they are working in two weeks.

2. For the reasons like need to have self-isolation as advised by doctors sick leave is received at a normal rate capped at $511 in a day.

3.If it is due to taking care of sick persons or minor children then sick leave obtained is two-thirds of regular pay capped at $200 per day. 

 

Exemptions

Businesses that have less than 50 employees can be exempted from all these provisions if they can prove that by providing the emergency paid sick leave they would be threatening the viability of their business

Tax credits for employers 

Since employers are paying the Emergency FMLA or emergency paid sick leave, they can avail of certain reimbursements by tax credits. 

  1. In every quarter, private organizations can avail refundable tax credits for FMLA and paid sick leaves. These tax credits would be applied to the Social Security taxes which the employer owes.

2. Even after this, if the businesses are not able to cover the payouts the Treasury Department can help with cash payouts. 

3. Moreover, the Treasury can also waive any penalties arising due to the failure of businesses in submitting their payroll taxes due to the anticipation of a refund as per the new laws.

4. Furthermore, the tax credit of employers is increased by the amount it is paying to maintain health care related to sick leave and FMLA.

Emergency Unemployment Insurance

By the FFCRA, the State Governments are allocated with $1 billion in funds for those workers who need unemployment insurance. This Act also removes the issue of unemployed workers to wait for one week to be eligible for Unemployment Insurance. This implies that the workers would be able to apply for the unemployment insurance quite faster.

Conclusion

Hence, with the coronavirus creating havoc in the lives of common people it is also evident that many self-employed individuals and small businesses would suffer losses as well. Layoff and workforce downsizing have already been started in several businesses. In such a stressful situation, the FFCRA is a sincere effort by the Federal Government to bring some alleviation in the economic stress of both employers and employees.

References

  1. https://blog.turbotax.intuit.com/tax-news/families-first-coronavirus-response-act-everything-taxpayers-need-to-know-about-the-new-relief-bill-46430/
  2. https://www.uschamber.com/co/start/strategy/families-first-coronavirus-response-act-guide
  3. https://www.natlawreview.com/article/emergency-legislation-families-first-coronavirus-response-act-updated-march-26-2020

 

 

All you need to know about the changes in tax rules due to COVID-19

All you need to know about the changes in tax rules due to COVID-19

by | Mar 18, 2020 | CARES, COVID - 19, federal government, FFCRA, Investment & Income, IRS, state government, tax deadline, Tax Extension, tax filing, Tax Payers, tax return, US Government

All you need to know about the changes in tax rules due to    COVID-19

On 13th March 2020, the US President had issued an emergency declaration in response to the ongoing COVID-19 pandemic. Due to COVID-19 the tax Rules have changed Since the outbreak of COVID-19 has caused huge harm to individuals and businesses, the Federal Government and the State Government have responded very promptly by making significant changes to the tax laws.  

FEDERAL EXTENSIONS: The IRS has announced for the extension of both tax payment and tax return filing deadline for several taxpayers including individuals, business entities, trust, etc. The tax payment and return filing deadline has been extended to 15th July 2020 which would have been 15th April 2020 otherwise. There would be a waiver of interest and late filing penalties for this extension  of these 90 days. This relief applies to a taxpayer’s 2019 income tax liability and the estimated income tax payments for the first quarter of 2020.

STATE EXTENSIONS: Although the tax implications and timelines are different for the states, still a majority of the states have extended their tax return filing and payment deadlines following that of the federal guidelines. However, there might be some states which have responded to this deadline extension separately. State responses to the tax deadline extension might apply to other categories of taxes as well apart from Income tax.

THE CORONAVIRUS STIMULUS PACKAGE: On 27th March 2020, the US President had signed an Act known as CARES i.e. Coronavirus Aid, Relief and Economic basis Security Act. This Act has been transformed into law which ensures a $2 trillion stimulus package. This will help in providing financial relief to business entities, individual taxpayers and even families. Also, by the coronavirus stimulus package taxpayers can avail of the benefits of advanced tax rebates.The taxpayers can receive stimulus checks up to $1,200 for individual taxpayers. 

 Joint taxpayers would receive stimulus checks up to $2,400 and an additional check of $500 in case of each qualifying child. The payment of this stimulus checks associated with COVID-19 would be done based on tax filings that have been done in 2018 or 2019. If a taxpayer has not yet filed the tax returns, then the information of 2018 would be used. The amount which would be paid now would be reconciled in the tax return of the next year depending on the 2020 situation. 

Moreover, the CARES Act also allows the Government to grasp the information of direct deposit in the income tax return filing of 2019 or the tax return 2018. This would help deposit the funds in the stimulus package directly into the taxpayer’s account by electronic means. 

So, in the present situation, it is advisable to file for 2019 tax returns soon and select to obtain the refunds by direct deposit method. By this, the IRS would be able to have the current tax filing information and direct deposit information which would help in the transfer of the stimulus amount conveniently. 

The FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA): 

President Trump has signed the Families First Coronavirus Response Act into Law which would be effective from no later than 2nd April 2020. According to the guidelines of this Act, employers who have an employee count of less than 500 ought to provide their employees with paid sick leave and expanded Family and Medical Leave Act (FMLA) rights and free testing for COVID-19. 

  1. This Act also helps in providing two refundable payroll tax credits which would help the businesses to make up for the cost incurred with the mandated paid leaves.  The eligible employers can claim both the credits in amounts that are equal to 100% of the amount of family leave wages which are paid under the FFCRA.  
  2. Employers need to offer paid sick leave tax credit and paid family leave or “Child Care Leave” Tax credit. Self-employed individuals or small business owners are required to offer paid sick leave for those employees who are unable to work due to COVID-19 and would also receive sick leave tax credit which is equal to 100% of the wage amount paid. This amount of credit has been limited to $200 per day if the employee is not able to work if he is taking care of a minor child after the closure of his school or an individual under the self-isolation order.
  3. Employers can also obtain refundable family leave tax credit for the wages that are being paid to the employees who are unable to work as they are taking care of a minor child. The school or child care center of the minor is closed due to the outbreak of COVID-19. 

Conclusion

Hence, in these difficult times of national emergency, these changes introduced by the US Government would be highly beneficial for all the taxpayers as it would mitigate the impact of COVID-19 on individuals as well as business entities.

References

https://blog.turbotax.intuit.com/tax-news/is-the-tax-deadline-delayed-what-to-know-about-coronavirus-covid-19-and-your-taxes-46320/

https://www.bradley.com/insights/publications/2020/03/update-on-federal-and-state-tax-responses-to-covid19-pandemic

 

What is Standard Deduction all about?

What is Standard Deduction all about?

by | Feb 26, 2020 | Form 1040, IRS, Standard Deduction

What is Standard Deduction all about?

Standard Deduction is meant to ensure that there is at least some income of an individual which is not subject to any income tax. In simple terms, the standard deduction can be said to be a specific amount which reduces your amount of income on which tax is being imposed. It is the flat amount which the tax system lets you deduct from your taxable income with no question asked about it. Usually, your standard deduction would depend upon the tax filing status for which you qualify. Standard deductions are subject to increase every year due to inflation.

Your standard deduction would consist of the sum of your basic standard deduction available and any extra standard deduction for which you qualify due to your age or any physical disabilities. You’re filing status such as your income, whether you are 65 years old or more than that, you are blind or not can affect the standard deduction which you can avail. According to the norms of the IRS, you have an option of either using the standard deduction or itemize your deduction. You cannot avail both at the same time, it is possible to either claim your standard deduction or itemize your deduction at a particular instant of time.

Itemized deductions are certain expenses that are allowed by the IRS for deduction from your taxable income. This can include the amount which you had paid for state tax, local tax, sales tax, real estate tax, personal property taxes, mortgage interest, etc. Also, you can include gifts given for charity and a particular part of the amount you paid for your medical or dental expenses. By itemizing deductions on Schedule A of the Form-1040, you would be able to reduce your taxes. However, it is less complicated to claim your standard deductions as compared to claim the itemized deduction.

How can you claim Standard Deduction?

Claiming Standard Deduction is less complicated and can be done easily by using the Form-1040. In line 8 of your Form-1040, you can put down your Standard deduction or a combined amount of your itemized deductions.

Additional standard deduction

You are allowed for claiming additional standard deductions under the below mentioned scenario.

  1. You can be allowed for an additional standard deduction if your age is 65 years or older than that at the end of the tax year. 
  2. If you are blind on the last day of the tax year, then you are eligible for claiming the additional standard deductions.
  3. In case you or your spouse are 65 years of age or more than that and are blind then you must claim your additional standard deduction.

When are you not eligible for claiming Standard Deduction?

Generally, the standard deductions are available for all but there are certain instances in which a taxpayer will not be eligible for claiming Standard Deduction.

  1. If you are married and are filing your tax return as married but filing it separately and your spouse claims the itemized deduction, then you are not eligible to claim Standard Deduction.
  2. If you have been a non-residential alien or a dual-status alien during a particular tax year, then you do not qualify for a Standard Deduction claim. However, this has an exception to it i.e. if you are a non-resident alien and get married to a US citizen or a resident alien then you can claim the standard deduction if you are filing a joint tax return and will choose to treat the nonresident alien as a citizen of the US.
  3. In case you are filing a tax return for a period that is less than 12 months due to a change in your annual accounting period, you cannot claim a Standard Deduction.
  4.  An estate, trust, common trust fund or partnership entity is not eligible to claim Standard Deduction.

Conclusion

Hence, even though claiming standard deductions are simple to process but they can cost you additional charges. So, the IRS suggests you think carefully about the numbers and which one gives you more deductions before making the claim.

Reference

  1. https://www.irs.gov/taxtopics/tc551
  2. https://www.irs.gov/taxtopics/tc501
  3. https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/what-are-standard-tax-deductions/L7oiVM1DH

 

What is FIRE Test File?

What is FIRE Test File?

by | Feb 23, 2020 | Electronic filing, FIRE, IRS FIRE System

What is FIRE Test File?

FIRE stands for Filing Information Returns Electronically. It can otherwise be stated as the IRS FIRE system which is the electronic network that is used for processing all categories of filing forms.

Let us first find out what is information return? Information return can be said to be a tax document that is used for reporting the specific types of payments which are made by financial institutions which make payments a part of their trade or business as it is required by the Internal Revenue Code Regulations.  Several forms can be filed through the FIRE system such as Forms 1097, 1098, 1099,3921, 3922, 5498, 8027, 8955-SSA, W-2G, etc. Forms like 1094 and 1095 can be filed through the Affordable Care Act Information Return System.

Participants of FIRE

An individual who has a FIRE System Transmitter Control Code (TCC) and needs to submit information returns can do this electronically by using the FIRE system.  According to law, any firm, corporation, estate, trust, etc. who needs to file 250 or more than 250 information returns in a particular year must do it by the electronic means using the FIRE system. However, IRS also encourages estates or firms who have to file even less than 250 information returns in a year should do it by using the FIRE system.

How to transmit electronically using the FIRE system?

To carry out the transmission successfully, you should have software that can create the FIRE file in the right format. If you are providing a scanned copy or a PDF copy then it will not be accepted. Moreover, a TCC is required for transmission of the information returns by the FIRE system.

If you are sending a request to obtain a TCC then you will have to fill Form-4419 for this purpose.

This Form-4419 has to be filed electronically in case you are requesting for TCC originally. But, if you already have a TCC and you are requesting for revision of the TCC information or requesting an additional TCC then you can do it by paper form.

If you have obtained a TCC but do not use it consecutively for two tax years then the FIRE TCC will be deleted and once it is deleted you will have to submit another Form-4419 for creating another TCC. The FIRE Production and Test system server does not support SSL 3.0 as FIRE System’s Internet Security Technical Standards and so, transmitters that use Internet Explorer 6.0 or lower versions may have logging and browsing problems.

Uploading a file to the FIRE system

  • Once you are ready to upload your file into the FIRE system, you will have to visit the login page of the IRS web portal.
  • On the left of the page, you can find out the “Main Menu” option. Now there, you can find an option i.e. “Send Information Returns”.
  • On selecting this, you will get a screen that asks you to enter your TCC and TIN.
  • Then, your details will be displayed on the screen i.e. company name, address, telephone number, e-mail address, etc. You need to click on “Accept”.
  • With this, you will obtain File options on the screen i.e. Test File, Original File, Replacement File, and Correction File.
  • Test Files are used to test your files for the upcoming tax year. On selection of the option of “Test Files”, you can search your file with name Fire.txt and then upload it.

Benefits of electronic filing 

Some of the major benefits of electronic filing by using the FIRE system are mentioned below.

  1. Files can be processed faster with lesser errors by the use of the FIRE system.
  2. FIRE system helps in providing the advantage of accepting multiple files for the same returns.
  3. For participating states, separate programs are available in the form of a Combined Federal Program or State Filing Program.

Conclusion

Hence, the FIRE test file is important for filing your information returns electronically. They make the process of electronic filing of tax returns easier and convenient for the common people.

Reference

  1. https://www.irs.gov/e-file-providers/filing-information-returns-electronically-fire
  2. https://www.1099-etc.com/blog/1099-w2-forms/irs-fire-system/
  3. https://www.1099fire.com/learning_center/fire/upload_file.htm