Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

by Mounica Kota | May 21, 2020 | COVID - 19, COVID - 19 pandemic, IRS, Tax benefits, Tax guidance, Tax Payers, taxes, US Government

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

Due to huge adverse impacts being created by the outbreak of the pandemic COVID-19, social distancing and restrictions on the travel of people residing in the US have been imposed by the US Government. These restrictions imposed on the travel of the people residing in the US are sure to raise queries on the taxation policies and guidelines.

The IRS and the Treasury Department of the US have together issued tax guidelines which would help provide some relief to those people/businesses which have been impacted by these travel restrictions imposed due to COVID-19.

The major highlights of this tax guidance can be listed below.

Revenue Procedure 2020-20
Revenue Procedure 2020-27
An FAQ

The Highlights Of This Tax Guidance

1.Revenue Procedure 2020-20

The Revenue Procedure 2020-20 provides the guidance that under specific circumstances up to a period of 60 consecutive calendar days of presence in the US due to travel disruptions caused because of COVID-19 would not be counted for determination of the US Tax Residency and for other purposes such as qualification for tax treaty benefits for income obtained from the personal services that have been performed in the US.

a.The pandemic COVID-19 has affected the travel plans of many foreign travelers who had planned to leave the US. Even though foreign travelers who test negative for COVID-19 are not being able to leave the US due to cancelation of flights, border closures, and other disruptions.

b.An alien individual would be considered as a US resident for a year under the substantial presence test in the calendar year if

The individual has been present in the US on at least 31 days during the tested calendar year.
The sum of the number of days of presence in the tested calendar year plus one-third of the number of days of presence in the previous calendar year plus one-sixth of the number of days of presence in the second preceding calendar year equal to 103 days or more.

c.Medical condition exception means an alien individual would not be considered as present in the US on those days when he intended to leave the US but was not able to do so due to serious medical condition which arose when the person was in the US.

d.Those individuals who are claiming the Medical Condition Exception need to file the Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition for filing Form 1040-NR. However, under certain circumstances, the need for timely file Form 8843 might be not taken into consideration.

e.The COVID-19 emergency would be considered as a Medical Condition Exception while determining his eligibility for treaty benefits and revenue procedures. For revenue procedure, an individual would be considered to have intended to leave the country unless he has applied for becoming a resident of the US. Also, for obtaining treaty benefits an individual would be presumed to be unable to leave the country during the period of COVID-19.

2.Revenue Procedure 2020-27

The IRS and the Department of Treasury have provided a waiver of the time requirements for revenue procedure and eligibility for treaty benefits. This Revenue procedure provides the qualification for being excluded from gross income under the IRC Section 911 and would not be impacted because of the days spent away from a foreign nation due to COVID-19.

a.A qualified individual can elect to exclude from the gross income of the individual’s foreign earned income and the housing cost amount.

b.The IRS and the Treasury Department have determined that the COVID-19 is an emergency. For IRC Section 911, an individual who had left China on/ after 1st December 2019, or any other foreign nation on/after 1st February 2020, but on/ before 15th July 2020, would be considered as a qualified individual concerning the period during which he was present in, or was a bona fide resident of, that foreign nation if the individual can establish an expectation that he would have met the requirements of the IRC Section 911 for COVID-19 emergency.

c.To qualify for relief for the revenue procedure, an individual must have been physically present, in the foreign nation on/ before the applicable date specified for this revenue procedure. An individual who was physically present or in China after 1st December 2019 or another foreign nation after 1st February 2020 would not be eligible to use this revenue procedure.

d.Individuals trying to qualify for the section 911 foreign earned income exclusion as they have been expected to be present in a foreign country for 330 days for the outbreak of COVID-19 and have met the other 4 requirements for qualification may use any 12 months to meet the qualified individual requirement.

3.FAQ

FAQ specifies that specific business activities which are conducted by foreign corporations or by a non-resident alien will not be considered in the 60 consecutive calendar days for determination if the individual or the business is engaged in some US business or has a permanent establishment in the US only if those business activities would not have been conducted in the US due to the travel disruptions caused due to COVID-19.

Hence, these tax guidelines framed by the IRS are also being continuously monitored by the IRS and the Treasury Department. Taxpayers can visit the IRS website and obtain further information related to this.

References

State and Local Tax relief laws for COVID-19

by Mounica Kota | Apr 11, 2020 | COVID - 19, federal government, global income tax, local tax relief laws, state tax relief laws, Tax credits, tax deadline, Tax Extension, tax filing, Tax Payers, taxes, US Government

State and Local Tax relief laws for COVID-19

The novel coronavirus (COVID-19) is spreading rapidly with a huge toll on the lives of common people and the global economy as well. In the US, the number of people being affected by the COVID-19 is on an increase and has reached around 4 lakhs now. The number of people who have died due to COVID-19 in the US is approximately around 11,000. Similarly, many people have even lost their livelihoods due to the closing or the downfall of several businesses.

However, Tax relief laws the Federal Government has been extremely considerate towards the sufferings of the common people and has taken several initiatives for providing some relief to them. The income tax payment and return filing deadline for the taxes due on 15th April 2020 has been postponed to 15th July 2020 by the IRS. Also, several new laws have been implemented by the Federal Government for the support of individuals, small and medium scale businesses even. The Coronavirus Aid, Relief and Economic Security Act (CARES), Families First Coronavirus Response Act, Stimulus Package, etc. are some of the major initiatives taken by the Government for providing support and assistance to people.

Tax relief laws by State Government

In the US, the tax rules and laws associated with the Federal Government and the State Government are different from each other. In this distressful period, the State Government of different states of the country has announced various changes and new rules related to the tax laws.

Let us talk about some of the major tax relief laws imposed by the State Government in the different states to deal with the economic disruption caused by COVID-19.

Alabama

In Alabama, the Revenue Department has announced on provisions for tax relief to small businesses that would not be able to pay their Sales tax for February, March, and April. Those small retail businesses whose monthly sales in the previous year have been $62500 or less on average can have the liberty to file their sales tax return for February, March, and April without paying the State Sales tax. There will be a waiver of late tax payment penalties for these small retail businesses through 1st June 2020.
The deadline for motor vehicle registration and vehicle property tax payment for March 2020 has been extended through 15th April 2020. Moreover, tax relief would be available for State lodgings tax account holders who are unable to make their payment for February-April 2020.
The due date for payment and filing returns for 2019 Income tax and 2020 estimated Income tax which were due on 15th April 2020 has been extended to 15th July 2020.

California

The Income Tax deadline for return filing, payment for 2019 and 2020 estimated tax payments Quarter 1 and Quarter 2 has been extended to 15th July 2020. This is also applicable for 2020 LLC taxes, fees, and 2020 non-wage withholding payments.
The Californian Employment Development Department (EDD) has declared that the employers in the State who have been impacted by COVID-19 can request a delay of up to 60 days in filing their State payroll reports or in the deposit of their payroll taxes without the payment of any penalty. The employers must provide a written request for this extension within 60 days of the original tax filing/payment due date.
Moreover, there has been an announcement on the deferral of business taxes for supporting small businesses that have been affected by the COVIS-19.

Connecticut

The Department of Revenue Services in Connecticut has extended the deadlines for filing the annual tax returns due on or after 15th March 2020 and before 1st June 2020 to 15th June 2020.
Also, the tax payments which are associated with these tax returns have been extended to the due date available in June.
The personal income tax return filing deadline has been extended to 15th July 2020 and this extension is also applicable for estimated tax payments of 2020 Quarter 1 and Quarter 2.

Columbia

For income tax returns, the deadline for tax payment and return filing which was due on 15th April 2020 has been extended to 15th July 2020.
In the District of Columbia, penalties/interest will be waived for the failure of sales tax payment for a period that ends on 29th February 2020 or 31st March 2020 if all the taxes are paid completely on or before 20th July 2020. This waiver does not apply to hotels or motels which can defer property tax under another emergency legislation.
This legislation states that hotels/motels can avail penalties waiver for the delay in payment of the property tax’s first installment of 2020 if the installment is paid by 20th June 2020.

Texas

In Texas, the Comptroller has declared that the sales tax collected in March 2020 would be remitted and would be available for emergency health care and other emergency operations for the people.
The Texan Comptroller has also insisted on the businesses in the State to make use of short term payment agreements for meeting the deadline of March 2020.

Massachusetts

The Department of Revenue in Massachusetts has implemented an emergency regulation amendment. According to this amendment, the sales and use tax return filing and payment which are due for the period of 20th March 2020 to 31st May 2020 will remain suspended. These tax return filing and tax payments would be now due for 20th June 2020.
Marijuana retailers, marketplace facilitators or motorcycle vendors are not included within this amendment. Any penalties or interest would be waived but the accumulation of statutory interest will continue.

Virginia

In Virginia, the Department of Taxation has announced that all the income tax payments which are due from 1st April 2020 to 1st June 2020 can be paid at the Department anytime on or before 1st June 2020. If all the payments are received by 1st June 2020, then the Department would waive all penalties for late payment otherwise penalties would start accumulating from the original payment due date.
However, interest would also keep accruing from the original due date of payment. Some of the taxes which are eligible for this extension and waiver are individual, fiduciary and corporate income taxes and any estimated income tax payments in this period. The State provides an automatic filing deadline extension for all the taxpayers for six months. Also, the Department of Taxation would consider requests for sales tax dealers who would request an extension in the sales tax payment and return filing which was due on 20th March 2020 and would extend it till 20th April 2020.

Montana

The Montana Revenue Department would assess the situation of taxpayers on a case-by-case basis and might permit the deferral of tax payments for up to one month at an instance.
The taxpayers must contact the Tax Collection Bureau by email, phone or mail at least one week before the actual due date of payment for making a deferral request.
The 2020 estimated tax payments for the first quarter have been extended to 15th July 2020 and the second quarter payment is also due on 15th July 2020.

Conclusion

Hence, along with the Federal Government, these are some of the tax relief laws/rules implemented by the different states. Taxpayers can communicate with their respective State tax agencies for complete details on the amendments made in their respective tax laws for COVID-19. These rules and amendments in State tax laws would act as a support for the distressed individual taxpayers or businesses in coping up with the economic disruptions.

References

https://tax.thomsonreuters.com/news/tax-relief-offered-by-states-and-localities-in-response-to-covid-19/?utm_campaign=T_CPE_NSL_9017597_covid19news_20200406_PR_EM1&utm_medium=email&utm_source=Eloqua&site_id=82769734&cid=9017596&chl=em&sfdccampaignid=7014Q000002SW4xQAG&elqTrackId=8432E59EA486AE4E4F693C86C8DF092E&elq=1fca5b09cc9e4a48adaa952eec158059&elqaid=22686&elqat=1&elqCampaignId=16486

https://www2.deloitte.com/us/en/pages/tax/articles/covid-19-state-and-local-tax-due-date-relief-developments.html

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

by Mounica Kota | 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

When you file your 2019 tax return will impact your stimulus payment?

by Mounica Kota | Mar 30, 2020 | Adjusted Gross Income, COVID - 19, federal income tax, income tax credit, SSN, tax filing, Tax Payers, tax return, taxes, US Government

Calculate your Stimulus Eligibility

When you file your 2019 tax return will impact your stimulus payment?

File your 2019 tax return will impact your stimulus payment, The pandemic COVID-19 continues to have a huge impact on the citizens of the USA. The Federal Government has been taking several steps to alleviate the burden that the common people might be facing due to this dreadful disease. One major step taken by the US Government to help out the common people in easing tax-related stress is by the passing of a $2 trillion stimulus bill. This bill includes a provision by which several citizens of the country would receive stimulus cheque from the Federal Government.

Eligibility for obtaining stimulus cheque

You can qualify to obtain the stimulus cheque from the Federal Government if the below-mentioned conditions are met.

If you are a US resident who is single and have an adjusted gross income which is less than $99,000.
If you file your tax returns as the head of the household and earn an amount below $136,500.
If you are filing your tax return jointly without any children and would earn an amount less than $198,000.

How to obtain the stimulus cheque

For obtaining a stimulus cheque, a person should have a Social Security number and should be the residents of the United States. The amount you can receive as a stimulus cheque is based on the adjusted gross income (AGI) that has been listed in your latest tax returns.

The IRS would be using the direct deposit information that you have provided during filing your last tax returns. In case your bank details have not been mentioned while filing the last return, the IRS would send the cheque to the recent address it has. It is also advisable to notify the IRS if you have shifted your house recently.

Factors affecting the stimulus payment

There are some major factors which can affect your stimulus payment such as

Filing status-If you are single you can receive $1200 as your stimulus payment, but for a married couple who are filing the income tax returns jointly the stimulus payment is $2400.

Size of your family-The stimulus payment also depends on the size of your family and for every child of yours who is below the age of 17 years; the stimulus payment is an additional $500.

Dependent-In case if you are claimed as a dependent on the tax returns of someone else then they would not be receiving any stimulus payment.

Level of your income-If you have a high income, the stimulus payment depends on the level of your income. For a married couple filing returns jointly, the stimulus payment starts reducing if the AGI exceeds $150000 and the same thing can occur for taxpayers who are single and their income exceeds $75000.

However, there is another factor is important in determining the stimulus payment and that is whether the tax returns for the year 2019 have been filed or not.

When are you filing your 2019 tax return?

Firstly, the IRS would always check out for tax returns related information for the year 2019 for making the stimulus payment. If there is no information available for the year 2019, the IRS would use the information for the year 2018.

In case, you have a Social Security Number but do not need to file the tax return then your stimulus payment would be done based on the information present in Form 1099-SSA.

This can be utilized as an opportunity by several taxpayers and if you have not filed or prepared your tax returns of 2019, then he can take into consideration the variables like Adjusted Gross Income, family size, etc. to determine higher stimulus payment to occur in which the year 2018 or 2019.

If, you feel that the payment was better in 2018 than you would hold on to that information or else if the returns of 2019 tend to yield more results then you should file your returns immediately.

Moreover, you must also consider any refund which you might obtain from the 2019 tax returns. It is quite obvious that you will have to make a decision i.e. either a large refund now and a smaller stimulus or larger stimulus immediately and the same refund after some months.

Stimulus payment can be said as an advanced payment which you would make against the actual credit that will be computed on the tax returns of 2020.

In case your advance payment done is less than what you would owe while computing the tax returns of 2020, then the excess would be obtained as a credit on the tax returns.
However, if advance payment is greater than what you owe while filing 2020 returns then there is no procedure to repay the excess amount or in recognition of the excess amount as income.

Conclusion

Hence, your stimulus payments are highly determined by when you are filing your tax returns. If you have not filed your tax returns for 2019 yet then you must consider if the tax return filing would either increase your stimulus payment or decrease it and then pursue your actions accordingly.

References

https://www.forbes.com/sites/anthonynitti/2020/03/26/when-you-file-your-2019-tax-return-will-impact-your-stimulus-payment/#32168a96b9dc

https://finance.yahoo.com/news/bigger-stimulus-check-waiting-file-123220996.html

https://www.cnbc.com/2020/03/26/coronavirus-stimulus-checks-heres-everything-you-need-to-know.html

https://www.bloomberg.com/news/articles/2020-03-26/when-and-how-will-i-get-that-1-200-stimulus-payment-quicktake

https://www.cnet.com/how-to/coronavirus-stimulus-check-is-official-find-out-if-youre-eligible-for-up-to-1200/

https://www.businessinsider.in/finance/news/how-to-get-a-stimulus-check-from-the-us-government-which-could-pay-up-to-1200-if-you-qualify/articleshow/74837139.cms

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

by Mounica Kota | 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

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.
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.
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.
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

Does the new tax deadline by IRS mean a new deadline for your IRA contribution?

by Mounica Kota | Mar 23, 2020 | federal income tax, global income tax, IRA, IRA Contribution, IRS, Tax Extension, tax filing, Tax Payers, Tax Refund, tax return, tax savings, taxes, US Government

Does the new tax deadline by IRS mean a new deadline

for your IRA contribution?

The IRS Tax Deadline, The federal tax filing deadline in the US has been extended up to 15th July 2020 to combat the effects of economic hazards caused due to the outbreak of COVID-19. This extension would also mean that you can make contributions to the IRA up to 15th July 2020.

IRA and how it works?

In the US, IRA or Individual Retirement Account helps you in saving money for retirement in a tax-advantaged way. The money which you would invest in this account can grow in a tax-deferred manner until you are ready to retire. Usually, traditional IRAs and Roth IRAs are opened by individuals whereas SEP IRAs and SIMPLE IRAs are meant for small business owners and self-employed individuals.

All the IRAs offer tax benefits which can be considered as a reward for saving. With the help of an IRA, you can even invest in stocks, bonds, and other assets. By making contributions to a traditional IRA, your tax bill would be reduced for the year in which you are contributing and you would not have owed income tax on the money until you withdraw it on your retirement. However, in a Roth IRA investments can grow in a tax-free manner but the contributions are not eligible for tax deductions. The withdrawal of the money can be done on retirement in a tax-free manner by investing in a Roth IRA as well.

The major benefits of an IRA can be listed below.

Saving tool for retirement
Cutting of tax bill
The wider option of investments available
Savior in any unexpected situation

By the IRA withdrawal rules, you can withdraw your money anytime from the IRA but by paying a penalty of 10% and a tax bill if your money has been withdrawn before the age of 59-1/2 years unless there is an exception.

Extension in IRA

contribution deadline

In case you have not been able to save much for your retirement in the last year, you can do that now as the IRA contribution deadline has also been extended. The IRS has extended this for 90 days without charging any penalties or interest for this.

You can contribute a maximum of $6000 towards the IRA. If you are above the age of 50 years then you can contribute an additional $1000 as a catch-up contribution. For making further contributions to your IRA you must contact the brokerage where your IRA has been held so that any additional funds that are added by you into the IRA are correctly filed.

Extension in the deadline for tax

owed on the income from IRA

If you have taken an early distribution from your IRA or any other work-based retirement plan then you will owe an additional tax. This will be a 10% additional tax on the amount that can be included in

gross income obtained from the early distribution. The deadline for reporting and payment of this additional tax has also got an extension up to 15th July 2020.

The major cause behind this is that this additional 10% tax is calculated and even paid at the same time as the income tax owed on the gross income. In case you are filing before 15th July 2020, then this extra 10% tax would be calculated at the time of filing itself.

Remove excessive

deferrals

In case, excessive deferrals have been made by you to your work-based retirement plans then those deferrals must be removed from the plan. This removal must be done by 15th April 2020 as those distributions need to be removed from the income and there has been no extension in this deadline.

Conclusion

Hence, the current situation is quite stressful for the people as the COVID-19 has led to several lay-offs and business closures in sectors that are customer-facing in nature. If you have extra cash now, you must contribute it towards your IRA and take one step ahead for your secure retired life.

References