How can the pandemic affect my taxation as an NRI in the US?

How can the pandemic affect my taxation as an NRI in the US?

by | Apr 21, 2020 | coronavirus, HSA, IRA, Stimulus payment, Tax Extension, Taxation

How can the pandemic affect my taxation as an NRI in the US?

The impact of the pandemic COVID-19 is on an increase across the entire world. Currently, more than 2 million people have been affected by COVID-19 out of which 1.7 lakhs have already died. taxation as an NRI in the United States has also experienced a very rapid spread of the coronavirus with the number of affected people being 7.5 lakhs approximately whereas the deaths due to COVID-19 have reached 40 thousand persons.

Not only the lives of the people in the US are being affected due to COVID-19, but there has also been a hugely adverse effect on the livelihoods of common people. Several businesses have closed down leading to many people including NRIs losing their jobs. However, the Federal Government has implemented several changes in the tax laws for the NRIs intending to reduce the stress in such troublesome times.

Changes in tax laws for NRIs

a.Deadline extension for filing tax returns

 The IRS and the US Treasury had declared that the deadline to file for individual federal income tax return has been extended to 15th July 2020. For this extension of 90 days provided by the IRS, there would not be any penalties charged by the IRS.

b.Deadline extension for tax payment

The deadline for making the federal income tax payment has also been pushed to 15th July 2020. This means if an NRI has tax to be paid this season then there is ample time to make the payments. For providing this extension in the timeline for tax payment, the IRS will not be charging any penalties. Moreover, this deadline extension is also applicable for the first quarter payment of estimated tax payments which were due on 15th April 2020.

c.No necessity for additional forms  

An NRI would not need to file for a tax extension to avail of the extended deadline for federal income tax return filing and federal income tax payment as well. However, if an NRI thinks that he would not be able to file the tax returns or pay the taxes even after 3 months then he would have to file for an extension by 15th July 2020.

d.Deadline extension for quarterly estimated tax payment

 For the self-employed NRIs who had their quarterly estimated tax payment due on 15th April 2020 and 15th, June 2020 would obtain an extension for the payment till 15th July 2020.

 

e.Changes in the deadlines for payment of State Tax

In general, the deadlines for filing federal tax returns and payment of federal tax are different from that of the State tax. However, due to the outbreak of COVID-19 the deadlines for Federal tax returns and tax payment had been extended. Most of the States have aligned their tax payment deadlines with that of the new Federal deadline. Some states have defined their guidelines for the payment of tax and deadlines. Complete information on the State tax-related changes and deadlines can be obtained from the respective State tax agencies.

f.Deadline extension for contributions to be made into IRA, HSA, and MSA

 Along with the extension in the deadline of Federal taxes, there has been an extension in the deadlines for making contributions to the IRA, HSA, and MSA. The deadline for contributing to the IRA, HSA, and MSA has been extended to 15th July 2020. However, in the case of IRA, the NRI must ensure that when he is making the additional contribution towards the IRA the custodian should earmark the additional contribution for the year 2019 and not consider it as 2020 return.

 

g.Stimulus Payments

Under the Coronavirus Aid Relief and Economic Security (CARES) Act, the Federal Government has announced the process of one-time payments to be sent in the form of Stimulus payments. These Stimulus payments would mainly depend on the filing of tax returns for 2019 and the Adjusted Gross Income (AGI) of an NRI.

NRIs filing tax returns as single filers and having an AGI below $75,000 would obtain $1200 as Stimulus payment. When the AGI is above $75,000 then the amount obtained reduces by $5 for every $100 increase in the AGI above $75,000. NRIs filing tax returns jointly as married couples and having an AGI below $150,000 would receive $2400 as Stimulus payment. If the AGI exceeds $150,000 then the Stimulus payment received would reduce by $5 for every $100 increase in the AGI above $150,000. In both cases, an additional $500 can be obtained if the filer claims a dependent below the age of 17 years.

However, along with these changes being implemented in the tax laws, the IRS is also processing the tax returns according to the normal procedures. So, it is advisable for the NRIs also to file their tax returns soon if they have not done it yet and obtain their refunds.

References

  1. https://blog.taxact.com/covid-19-and-your-taxes/
  2. https://blog.taxact.com/stimulus-payments-everything-to-know/

 

Everything you need to know about tax relief implemented for the ongoing coronavirus disease 2019

Everything you need to know about tax relief implemented for the ongoing coronavirus disease 2019

by | Apr 2, 2020 | COVID - 19, HSA, IRA, IRS, state tax, tax deadline, Tax Exception, Tax regulations

Everything you need to know about tax relief

implemented for the ongoing coronavirus disease 2019

The dreadful coronavirus disease has taken a toll on the global economy. Businesses are suffering from losses and employees are losing their jobs. In such a situation, tax compliance is an additional factor of stress on the common people and business entities as well. In such difficult times, the US Government has taken an initiative and introduced certain changes to federal tax laws. 

Extension in federal tax deadlines

 The US Department of Treasury and the IRS issued Notice 2020-17on 18th March 2020. According to the guidelines of this notice, there has been an extension in the deadline for payment of federal income tax or federal tax return. Any taxpayer having a federal income tax payment or federal income tax return due on 15th April 2020 can file the returns by 15th July 2020. This extension of 90 days has been provided by the IRS without charging any penalties or interest for late filing. This tax relief is applicable for all taxpayers who include individual, trust, estate, partnership association, corporation, etc. 

The affected taxpayers do not need to file the forms Form 4868 or Form 7004. Also, there is no limitation on the amount of payment that might be postponed. This relief on taxes is applicable for the Federal Income tax and Federal tax return of 2019 and for the estimated federal income tax payment of 2020 which were due on 15th April 2020. However, no extension has been announced for the filing of any other type of federal income tax or federal tax return.

Extension in State tax deadlines 

The majority of the States have agreed to the tax changes implemented by the Federal Government and have responded accordingly. However, there are some states which have responded differently to these tax changes implemented by the Federal Government. Taxpayers can obtain all information related to the changes in State tax laws from their state tax agencies.

Contributions to IRA

With the changes in the deadlines for tax payment and filing of tax returns for the federal tax, the deadline for making contributions to IRA has also been extended. The deadline for making contributions to the IRA has been also extended to 15th July 2020. This extension of 90 days for making contributions to the IRA has been provided by the IRS without charging any penalties or interest.

Taxpayers can contribute a maximum amount of $6000 towards their IRA and if the taxpayer is above the age of 50 years then there can be an additional contribution of $1000.This is an excellent opportunity for the taxpayers to save more for their retirement if they have not done so. 

Contributions to HSA

Along with the extension made in filing federal tax payments and federal tax returns up to 15th July 2020, the deadline for making contributions to HSA has also been changed to 15th July 2020.

In case if the taxpayer is having a high –deductible health insurance plan with an HSA then he can add up to $3500 if he has self-only coverage. This amount can be increased to $7000 in case of family health plans. In the case of the taxpayer being above the age of 55, a contribution of an additional $1000 can be made into the account.   

The stimulus package and

Families First Coronavirus Response Act

The Stimulus package will help the taxpayers in obtaining stimulus checks. These stimulus checks would of amount $1200 for the individual taxpayers, $2400 for those who are filing tax returns jointly and $500 for each qualifying child. These payments related to the stimulus package would be done by using the tax information of the taxpayers based on their recent tax filings. The amount which would be paid would be reconciled on the next year’s tax return based on the taxpayer’s situation in 2020.

The Families First Coronavirus Response Act helps in providing relief to the individual taxpayers as well as self-employed individuals and small businesses. The eligible employees who have been impacted by the coronavirus would receive emergency sick leave and paid sick leave.

Under FMLA (Family Medical Leave Act), if an employee needs to be quarantined, took care of a family member who was quarantined or took care of minor children whose schools/child care centers are closed due to COVID-19 can avail 12 weeks of job-protected leave. Also, if an employee is himself seeking medical supervision or is being quarantined then he would be eligible to receive two weeks paid sick leave and two-thirds pay for the care of the family member/child. 

Furthermore, self-employed taxpayers and small business owners can obtain tax credits for providing paid sick leave and emergency family medical leave to the employees. Self-employed taxpayers can obtain a tax credit which is equivalent to the qualified sick leave amount whereas they can obtain a refundable tax credit equivalent to 100% of a qualified family leave amount. Small business owners are eligible to obtain refundable tax credits equivalent to 100% of both the qualified paid sick leave and qualified family leave wages.

Conclusion

 Hence, with the implementation of these tax relief strategies by the US Government the stress of the taxpayers would be reduced up to some extent until things return to square one.

References

  1. https://www.irs.gov/pub/irs-drop/n-20-18.pdf
  2. https://blog.turbotax.intuit.com/tax-news/families-first-coronavirus-response-act-everything-taxpayers-need-to-know-about-the-new-relief-bill-46430/
  3. https://blog.turbotax.intuit.com/tax-news/is-the-tax-deadline-delayed-what-to-know-about-coronavirus-covid-19-and-your-taxes-46320/

 

How high deductible health plans would help in providing cover against COVID-19 expenses?

How high deductible health plans would help in providing cover against COVID-19 expenses?

by | Mar 31, 2020 | COVID - 19, federal government, HDHP, HSA, Relief notice 2020-15, tax deadline, Tax Extension, Tax Payers, taxes, US Government

How high deductible health plans would help

in providing cover against COVID-19 expenses? 

Lately, people across the world have been struggling hard to combat the dreadful effects of the pandemic COVID-19. The number of deaths occurring due to coronavirus is on an increase and is also leading to an increase in the fright of the common people. Any symptoms of the COVID-19 and there have to be several tests, quarantining without any idea about what the future holds.Amidst all this chaos, the US Government has taken some very necessary steps to lessen the stress among common people. Extension in the tax return filing and tax payment deadlines, extension in the deadline for making contributions to IRA and HSA, Tax stimulus package, Families First Coronavirus Response Act, etc. are some of the major changes implemented by the US Government to bring some relief to the impacted taxpayers. Another major initiative taken by the US Government for helping the common people is the implementation of testing /treatment of COVID-19 by HDHP with no deductible or sharing of the cost.

What is a High Deductible Health Plan (HDHP)?

What is a High Deductible Health Plan (HDHP)?

A high deductible health plan (HDHP) is a type of health insurance plan which has a lower premium in a month and a higher deductible. HDHPs are more affordable by common people in terms of their monthly premiums. Since the name suggests, high deductible health plan; it implies that the deductible for the health plan is high than that of a traditional healthcare plan. However, by the time the policy holder reaches the annual deductible, he would be covered 100% for the rest part of the calendar year. 

A high deductible health plan is suitable for those policyholders who are quite healthy and rarely visit the doctor. In these types of cases, HDHP is an excellent option to cut expenses and it is a better option rather than going without health insurance. However, it should be kept in mind that the policyholder must set aside a considerable amount of liquid savings which would help in covering the deductible and the out-of-pocket expenses.

How does a High Deductible Health Plan work?

How does a High Deductible Health Plan work?

The minimum deductible in an HDHP is $1350 for an individual whereas it is around $2700 for a family. The out-of-pocket expenses for an HDHP are limited to $6650 for an individual and $13300 for a family. To offset the cost of the HDHP it is necessary to open a Health Savings Account (HSA). The HSA offers a tax-advantaged method by which healthcare costs can be saved.  

There is a limit on the annual contribution which can be made to the HSA; it helps in rolling over the balance from one year to another. It is ideal for a policyholder to contribute the amount of deductible of HDHP into the HSA so that there are enough funds to cover the medical expenses.

HDHPs and expenses associated with COVID-19

HDHPs and expenses associated with COVID-19

The US Government issued a notice i.e. Notice 2020-15 which states that a health plan which satisfies the requirements to be a high deductible health plan (HDHP) shall not fail to be an HDHP if it provides health benefits related to the testing of COVID-19 and its treatment. This testing and treatment of COVID-19 by the HDHP would be available without a deductible or with a deductible which is below the minimum deductible. So, the evident implication from this notice is that an individual who is covered under the HDHP will still be an eligible individual who might make tax-favored contributions to an HSA.                     

The Notice 2020-15 also states that all the medical care services received and the materials purchased for the testing of COVID-19 which are provided by a health plan which is either without a deductible or with a deductible that is below the minimum deductible needed for a health plan to be HDHP should be disregarded.

The relief provided by the Notice 2020-15  

The relief provided by the Notice 2020-15  

This notice does not modify any of the requirements or conditions which are needed for a health plan to be an HDHP other than the relief related to the testing/treatment of COVID-19. However, vaccinations would continue to be considered as preventive care materials for determining if a health plan is an HDHP or not.

So, if a policyholder is availing a health plan with no deductible or less deductible than the minimum annual deductible needed to be an HDHP for testing/treatment of COVID-19 he would still make contributions to the HSA which can help in tax relaxation.

Conclusion

Hence, this effort by the US Government for providing some relief to the affected citizens is commendable and would be helpful for the citizens in these times of distress.

References

  1. https://www.irs.gov/pub/irs-drop/n-20-15.pdf
  2. https://www.thebalance.com/what-is-high-deductible-health-insurance-2385898

 

Answers to the top queries on tax regulations during COVID-19

Answers to the top queries on tax regulations during COVID-19

by | Mar 24, 2020 | COVID - 19, federal government, Form 1040, HSA, IRA, IRS, refund due, state tax, Tax Break, tax deadline, Tax Payers, Tax regulations, tax return, Top queries, US Government

Answers to the top queries

on tax regulations during COVID-19

The outbreak of the pandemic COVID-19 has created huge economic disruption globally. Amidst all the chaos and economic troubles, the US Government has announced certain changes related to the tax filing activities. Amongst these changes, the most important one is the extension in the deadline for federal tax filing to 15th July 2020. This step has been taken by the US Government to provide some relief to concerning handling taxes amidst the trauma spread by the COVID-19.Answers to the top queries on tax regulations during COVID- 19.

Now, with these changes been introduced by the US Government, it is quite obvious for you to have several questions related to the changes made, new tax deadlines and other associated impacts. Let us check out the answers to all the evident questions related to these changes introduced by the IRS.

  • Is there a possibility of state taxes to have a different deadline?

Mostly, a majority of the states have confirmed to the same extended deadline as that of the Federal tax i.e. 15th July 2020. However, there can be some states which will have different tax deadline than that of the Federal tax. You can know in detail about your State tax filing deadline by checking with your respective state tax agencies. 

  • Can I file my tax return according to the original tax filing deadline i.e. by 15th April 2020?

Yes, you can file your tax returns according to the original deadline i.e. 15th April 2020. If you expect a refund from the IRS it is advisable to file your tax returns now to get your refund money soon.

  • Is there a probability of obtaining the tax refund being delayed?

There are no such probabilities of tax refund being delayed and would be processed as normal. If the tax return has been filed by electronic medium or via direct deposit then it would be refunded within a maximum of 21 days. 

  • Is there any specific eligibility for availing this extended deadline for filing a federal tax return?

Any person who has a federal income tax payment or returns due on 15th April 2020 is eligible for availing the relief of the extended timeline. Here “person” can denote an individual, an estate, a trust, a corporation or even a business entity. The payment here refers to the Federal income tax payments for 2019 and the estimated federal income tax payment 2020. It must be noted that the return or tax payment must be due on 15th April 2020 and this relief does not apply to any return/payment due on any other date. 

  • Does this extension in the tax filing deadline means that I can some more time for making contributions to my HSA?

You can make contributions to your HSA anytime until the extended tax filing deadline. Since the tax filing deadline has currently been extended to 15th July 2020you can make your contributions into HSA until then.

  • I have already filed my tax return 2019 which was due on 15th April 2020 and even I have to pay taxes that are not paid yet? What can be done to avoid penalties and interest? 

You can avoid penalties and interest by paying your income tax by 15th July 2020. Interest/penalties will be charged only after 15th July 2020 if the due tax has not been paid. In case of filing the tax return by Form 1040 or Form 1040-SR the amount to be paid will be found on Line 23. If the return has been filed by using Form 1040-NR, the amount can be found on Line 75. For a corporation that is filing a return using Form 1120, the tax amount can be found online 35.

  • Does this extension in the tax filing deadline mean I have more time to make contributions to my IRA for the year 2019?

Contributions into IRA for a particular year can be made till the tax filing due date of that year. Now since the income tax filing for the year 2019 has been shifted to 15th July 2020 you can make contributions to your IRA till 15th July 2020.  

  • What to do if I am not able to pay my taxes due on 15th April 2020 by 15th July 2020 even?

If you are individual and are not able to pay your taxes that are due on 15th April 2020 even by 15th July 2020 then you must request an automatic extension. You will have to request for this automatic extension by 15th July 2020 and can be done by electronically filing Form 4868. Business entities and trusts can file for this extension by filing Form 7004.  

Hence, these are some of the common queries answered related to the extension of the federal tax filing deadline. This effort by the US Government during these times of emergency is sure to reduce stress related to finances up to some extent.

References

https://blog.turbotax.intuit.com/tax-news/your-top-tax-questions-about-coronavirus-covid-19-answered-46591/

https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers