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CPA Now
Mar 25, 2020

Tax Updates Relevant to the COVID-19 Outbreak

Jenkins_EdBy Edward R. Jenkins Jr., CPA, CGMA


Congress is working to provide financial relief to individuals, businesses, and tax-exempt organizations crippled by the COVID-19 pandemic. As of March 23, 2020, a few provisions already have been passed by Congress and announced by the Treasury Department and IRS. In addition, Pennsylvania Gov. Tom Wolf has asked all non-life-sustaining businesses to close their physical locations (see link below for list of “life-sustaining” businesses). Wolf’s proclamation is significant to the operation of the federal COVID-19 relief for employers.

For CPA tax practitioners, note that tax preparation (among a few other financial services) has been classified as a life-sustaining business.

There are five tax matters that have received relief action as of March 23, 2020:

  • Extension of the time to file federal and state returns due from April 15, 2020, to July 15, 2020.
  • Extension of the deadline to pay federal and state taxes due from April 15, 2020, to July 15, 2020.
  • Paid sick leave relief for employers and employees.
  • Paid family leave relief for employers and employees.
  • High-deductible health plans will not be disqualified if the plan allows coverage for COVID-19 testing, without those costs applying to minimum deductibles under the plan.

Filing Tax Returns and Paying Taxes

Stethescope on financial formsIRS Notice 2020-18 authorizes a delay for filing of federal income tax returns that were due April 15, 2020, to July 15, 2020, for any “affected taxpayer.” An “affected taxpayer” is any person (corporation, individual, trust, estate, partnership, etc.). Those returns include the 2019 tax returns due April 15, 2020, as well as the first payments of estimated income and self-employment tax (Applicable Postponed Payment Amount). The filing of an extension is not necessary. You will need to file extensions if you go past the new July 15, 2020, due date.

Pennsylvania has followed suit, except the postponed due date extends to the second quarter of estimated Pennsylvania personal income tax in addition to the 2019 personal income tax liability and the first quarter 2020 estimated Pennsylvania personal income tax payment.

IRS Notice 2020-18 (superseding Notice 2020-17) authorizes a delay of the deadline for payment of federal income taxes that are due by April 15, 2020, to July 15, 2020. Those deferred payments include the 2019 tax due April 15, 2020, as well as the first payments of estimated income and self-employment tax (Applicable Postponed Payment Amount). Initially, IRS Notice 2020-17 limited the corporate income tax deferral to $10 million, and individual maximum deferral at $1 million. Notice 2020-18, however, removes the limitations.

Pennsylvania has followed the federal lead, except the postponed payment includes the second quarter of estimated Pennsylvania personal income tax in addition to the 2019 personal income tax liability and the first quarter 2020 estimated Pennsylvania personal income tax payment. When it comes to local tax collection, each Tax Collection Committee or county must make its own declaration to extend filing and payment deadlines. Information regarding extensions can be found on PICPA's website as the become available.

Paid Sick Leave

President Donald Trump signed the Families First Coronavirus Response Act on March 18, 2020. The law requires employers with fewer than 500 employees to provide paid sick leave to employees who are forced to stay home due to quarantining or to care for a family member.

The employer receives a refundable credit against the Social Security (Old-Age, Survivors, and Disability Insurance and Railroad Retirement Tax Act) portion of payroll taxes that must be paid each quarter. The credit is equal to 100% of the sick leave wages paid under the new law.

The credit was initially limited to $200 per day, per affected employee. However, because of Wolf’s required closures for many businesses and entities, the maximum per-day, per-person credit is increased to $511. Specifically, the increase to $511 occurs when:

  • The employee is subject to federal, state, or local quarantine or isolation for COVID-19 (such as Wolf’s order);
  • The employee’s health care provider instructs the employee to self-quarantine due to COVID-19 concerns; or
  • The employee is experiencing symptoms of COVID-19 and the employee is seeking diagnosis.

The maximum number of days of qualified sick leave is limited to a maximum of 10 days of wages.

For the self-employed, the credit is computed differently. The credit is allowed to offset both income and self-employment tax. The limit on qualified sick leave for the self-employed person is determined by multiplying the number of sick days (up to 50) that the self-employed person was unable to perform services by the lower of two measures: 67% of the taxpayer’s average daily self-employed earnings, or $200 increasing to $511 if the same circumstances as above apply.

Paid Family Leave

The Families First Coronavirus Response Act also requires employers with fewer than 500 employees to provide paid family leave to employees who are forced to stay home because a child’s school or day care is closed.

A separate refundable credit is available to the employer for qualified family leave paid by the employer. The employer receives 100% of qualified family leave wages paid up to a maximum of $200 per-day, per-person, up to a total of $10,000.

For the self-employed, the credit is computed differently. The credit is allowed to offset both income and self-employment tax. The limit on qualified family leave for the self-employed person is determined by multiplying the number of sick days (up to 50) that the self-employed person was unable to perform services by the lower of two measures: 67% of the taxpayer’s average daily SE earnings or $200.

High-Deductible Health Plans

High-deductible health plans will not be disqualified if the plan allows coverage for COVID-19 testing, without those costs applying to minimum deductibles under the plan.

Conclusion

Please note these provisions are temporary tax provisions and the legal basis of the provisions could be challenged. For updates affecting the CPA profession, visit PICPA’s coronavirus news updates, as well as the vital information provided by the following sources:


Edward R. Jenkins Jr., CPA, CGMA, is professor of practice in accounting for Pennsylvania State University in University Park, managing member of Jenkins & Co. LLC in Lemont, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at erj2@psu.edu.


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Disclaimer
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.