What are the tax relief initiatives taken by the IRS for self-employed taxpayers during COVID-19?

What are the tax relief initiatives taken by the IRS for self-employed taxpayers during COVID-19?

by | Mar 28, 2020 | COVID - 19, federal government, FFCRA, global income tax, IRS, self employed, Tax Extension, Tax Payers, taxes, US Government

What are the tax relief initiatives taken by the IRS

for self-employed taxpayers during COVID-19?

The US Government has recently made changes into the tax filing timelines as an effort to provide some relief to the taxpayers who are already suffering due to the outbreak of pandemic COVID-19. These changes were jointly announced by the US treasury and the IRS and are applicable for individual taxpayers, businesses and even self-employed taxpayers.

The US Government has extended the income tax filing deadline to 15th July 2020. The IRS would be processing the refund process for all the taxpayers within the normal time frame which is around 21 days for those filing the tax returns by electronic medium or by direct deposit.

Tax-filing extensions for self-employed taxpayers

Tax-filing extensions for self-employed taxpayers

The tax filing timeline has been extended for 90 days without the payment of any penalty and this change is also applicable on the estimated tax payment for the year 2020 which was also due on 15th April 2020.

For self-employed taxpayers, if there is a filing of the quarterly estimated tax then first-quarter filing must be due by 15th April 2020 previously. The timeline for the filing of the first quarter estimated tax has now been extended to 15th July 2020. However, for the other quarters, the filing dates remain unchanged such as the tax filing deadlines remain 15th June 2020, 15th September 2020 and 15th January 2021 for the second, third and fourth quarters. 

The Families First Coronavirus Act

On 18th March 2020, the US President signed into law the Families First Coronavirus Act which is the initial coronavirus relief bill. This Act provides several benefits to self-employed taxpayers and small-business owners.

1.Comparable tax credits for self-employed individuals

 

 

a.If a self-employed individual is affected by the coronavirus, then by this Act he is eligible to claim a refundable credit against the bill of his federal income tax including the self-employment tax hit. In case the credit is more than the bill amount then the Government will issue a payment for the excess to the taxpayer.

b.This refundable credit will equal to the sum of 100% of the self-employed individual’s sick leave equivalent and 67% of the sick leave equivalent amount needed for taking care of a family member who is sick or for taking care of the individual’s child due to the closing of the child’s school or child care center.

c.The sick leave equivalent amount would equal to lesser among the below-mentioned

  • average daily self-employment income of the individual or  
  • $511 each day for up to 10 days for self –care due to the COVID-19  or $200 each day up to 10 days for the care of a sick family member or child after the latter’s school has been closed due to COVID-19.

d.Moreover, self-employed individuals can claim a family-leave credit due to COVID-19 up to 50 days. The amount of this credit would be equal to the number of the qualified family day leaves multiplied with the lesser amongst $200 or the individual’s average daily self-employment income. The maximum total family-leave credit permissible is $10,000 which is equal to 50 days multiplied with $200 per day.

e.These credits which can be availed by the self-employed individuals are allowed only for the days during a particular period which is specified by the Treasury up to 31st December 2020. The beginning date is most likely to be within 15 days of the date this Act became a law i.e. 18th March 2020.

f.The self-employed individuals must maintain proper documentation needed to claim these credits.       

2.Small Business  Owners Tax Credits

  1. A small business owner is eligible to collect a tax credit which is equal to 100% of the qualified emergency sick-leave and family-leave payments made by him under the Families first coronavirus Act.
  2. This credit would only cover those leave payments which are made during the period specified by the Secretary of the Treasury up to 31st December 2020. 
  3. This credit can also be increased for providing cover to a portion of the small business owner’s qualified health-plan expenses which can be allocated for emergency sick-leaves and family-leave wages.
  4. However, this credit would not be available for those employers who are already receiving the pre-existing credit for paid family leave and medical leave under IRS Code Section 45S.

 

Conclusion

Hence, with the outbreak of the COVID-19 the self-employed individuals and small business owners have also suffered from certain economic and financial disruptions. The attempt of the US Government to bring certain relief to these taxpayers by changing tax laws and by passing the Family First Coronavirus Act is sure to be successful.

References

https://blog.turbotax.intuit.com/self-employed/what-the-coronavirus-relief-means-for-self-employed-taxpayers-46585/

https://www.marketwatch.com/story/what-the-family-first-coronavirus-relief-bill-means-for-small-business-owners-and-self-employed-people-2020-03-21

   

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