Answers to Questions You May Have About Economic Impact Payments

Millions of eligible Americans have already received their Economic Impact Payments (EIPs) via direct deposit or paper checks, according to the IRS. Others are still waiting. The payments are part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here are some answers to questions you may have about EIPs.

Who’s eligible to get an EIP?

Eligible taxpayers who filed their 2018 or 2019 returns and chose direct deposit of their refunds automatically receive an Economic Impact Payment. You must be a U.S. citizen or U.S. resident alien and you can’t be claimed as a dependent on someone else’s tax return. In general, you must also have a valid Social Security number and have adjusted gross income (AGI) under a certain threshold.

The IRS also says that automatic payments will go to people receiving Social Security retirement or disability benefits and Railroad Retirement benefits.

How much are the payments?

EIPs can be up to $1,200 for individuals, or $2,400 for married couples, plus $500 for each qualifying child.

How much income must I have to receive a payment?

You don’t need to have any income to receive a payment. But for higher income people, the payments phase out. The EIP is reduced by 5% of the amount that your AGI exceeds $75,000 ($112,500 for heads of household or $150,000 for married joint filers), until it’s $0.

The payment for eligible individuals with no qualifying children is reduced to $0 once AGI reaches:

  • $198,000 for married joint filers,
  • $136,500 for heads of household, and
  • $99,000 for all others

Each of these threshold amounts increases by $10,000 for each additional qualifying child. For example, because families with one qualifying child receive an additional $500 Payment, their $1,700 Payment ($2,900 for married joint filers) is reduced to $0 once adjusted gross income reaches:

  • $208,000 for married joint filers,
  • $146,500 for heads of household,
  • $109,000 for all others

How will I know if money has been deposited into my bank account?

The IRS stated that it will send letters to EIP recipients about the payment within 15 days after they’re made. A letter will be sent to a recipient’s last known address and will provide information on how the payment was made and how to report any failure to receive it.

Is there a way to check on the status of a payment?

The IRS has introduced a new “Get My Payment” web-based tool that will: show taxpayers either their EIP amount and the scheduled delivery date by direct deposit or paper check, or that a payment hasn’t been scheduled. It also allows taxpayers who didn’t use direct deposit on their last-filed return to provide bank account information. In order to use the tool, you must enter information such as your Social Security number and birthdate. You can access it here: https://bit.ly/2ykLSwa

I tried the tool and I got the message “payment status not available.” Why?

Many people report that they’re getting this message. The IRS states there are many reasons why you may see this. For example, you’re not eligible for a payment or you’re required to file a tax return and haven’t filed yet. In some cases, people are eligible but are still getting this message. Hopefully, the IRS will have it running seamlessly soon.

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CARES ACT - Part II

The Coronavirus Aid, Relief and Economic Security (CARES) Act, the third item of federal legislation enacted in response to the unprecedented COVID-19 pandemic, was passed by Congress on March 27th and swiftly signed into law the same day.

The scope of the relief bill is far-reaching, providing financial assistance through channels ranging from additional funding for medical institutions to emergency grants for small businesses to targeted relief via federal tax law changes. These tax law changes, many of which were given retroactive effect, will help taxpayers and businesses cope with cash flow issues over the coming weeks and months by reducing the tax burden and/or providing a larger refund than would be allowed under pre-CARES Act law.

In this article, we are focusing on some of the business provisions within the law.

Payroll Tax Due Date Delays

The CARES Act delays the due date for the employer's share of Social Security taxes. Under the Act 50% of the employer's share of Social Security taxes may be deferred until December 31, 2021, and the other half may be deferred until December 31, 2022.  Similarly, for self-employed taxpayers, the Act delays payment of 50% of 2020 self-employment taxes until 2021 and 2022. The relief isn't available if the taxpayer has had debt forgiveness for certain loans under the Small Business Act as modified by the CARES Act.

Loss Carryback

Taxpayers can carryback 100% of net operating losses (NOLs) realized in 2018, 2019, and 2020, to the prior five years. Such carryback had been eliminated by the Tax Cuts and Jobs Act of 2017 ("TCJA"). The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit).

As a result of the CARES Act changes there are now three different NOL regimes:

   1.      NOLs generated on or before December 31, 2017

    • Two-year carryback
    • 20- year carryforward
    • Eligible to offset 100% of taxable income

   2.      NOLs beginning after December 31, 2017 and before January 1, 2021

    • Five-year carryback
    • Indefinite carryforward
    • Eligible to offset 100% of taxable income prior to 2021 and 80% of taxable income after 2020

   3.      NOLs beginning on or after January 1, 2021

    • No carryback
    • Indefinite carryforward
    • Eligible to offset 80% of taxable income

Interest Deduction

The CARES Act temporarily increases the net interest deduction limitation to 50% of adjusted taxable income (ATI) (previously limited to 30%). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. There is a special carve out rule for partnerships so that a partnership may not use the increased limitation in 2019, thereby deferring any potential benefit from the 50% threshold to 2020.

Deprecation of QIP

The CARES Act corrects an error in the TCJA by decreasing the depreciation life of "qualified improvement property" to 15 years, thus making such property eligible for 100% bonus depreciation. QIP is defined as any improvement made by the taxpayer to the interior of a non-residential building that is placed in service after the building's initial placed in service date other than improvements attributable to elevators, escalators, building enlargements, or the building's internal structural framework. In giving QIP 15-year MACRS status, it restores the 15-year MACRS write-off, making it eligible for 100% bonus depreciation.

This correction is retroactive to January 1, 2018. Taxpayers may change their depreciation of QIP by filing an automatic accounting method change with the IRS, though, if a QIP asset was only depreciated on a single tax return—e.g., it was placed in service in 2018 and the 2019 return has not yet been filed—the taxpayer may change the asset's depreciation method by filing an amended income tax return

Charitable Contribution Deductions

The limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn't apply to qualifying contributions made in 2020. Instead, a corporation's qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required. 

For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Student Loan Payments Permitted

For employers with qualified educational assistance programs under Internal Revenue Code Section 127, the CARES Act provides a much sought-after change to permit employers to pay employees up to $5,250 per year on a tax-free basis for student loan debt expenses.  Importantly, this change only applies for payments made between March 27, 2020, and December 31, 2020. Eligible student loan repayments are payments by the employer, whether paid to the employee or a lender, of principal and interest on any qualified higher education loan for the education of the employee but not of a spouse or dependent.

Employers with qualified educational assistance programs must amend their plans to permit these tax-free student loan payments.  Employers who do not currently maintain a qualified educational assistance program may adopt such a program, but to be qualified, the program must be maintained under a written plan document and otherwise be compliant with Code Section 127.  We recommend consulting with your employee benefits counsel before adopting a qualified educational assistance program to ensure compliance with the Code.

Employee Retention Credit

Eligible employers (including non-profits) may qualify for an employee retention credit equal to 50% of qualified wages paid to employees beginning March 12, 2020, through December 31, 2020, up to $10,000 per employee.  Thus the maximum credit is $5,000 per employee. The tax credit is applied against the employer's Social Security payroll tax obligation but is reduced by any credits the employer receives under the Families First Coronavirus Response Act (FFCRA).

If the available tax credits exceed the employer's total Social Security tax obligation, the employer may qualify for a refund in the amount of the excess.  Furthermore, the employer's tax credits under the CARES Act may be increased by the employer's qualified health plan expenses allocable to qualified wages paid.

Wages don't include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit. An employer can elect to not have the credit apply on a quarter-by-quarter basis. 

Employers eligible for this tax credit include employers who were carrying on a trade or business during the 2020 calendar year, and either (a) whose operations are partially or fully suspended during any applicable quarter due to orders from the appropriate governmental authority limiting commerce, trade, or group meetings due to COVID-19; or (b) beginning January 1, 2020, whose gross receipts for any quarter are less than 50% of gross receipts for the same quarter in the prior year. Credits will continue until gross receipts exceed 80% of the same quarter's gross receipts in the previous year.

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COVID-19: IRS Announces More Relief and Details

In the midst of the coronavirus (COVID-19) pandemic, Americans are focusing on their health and financial well-being. To help with the impact facing many people, the government has provided a range of relief. Here are some new announcements made by the IRS.

More deadlines extended

As you probably know, the IRS postponed the due dates for certain federal income tax payments — but not all of them. New guidance now expands on the filing and payment relief for individuals, estates, corporations and others.

Under IRS Notice 2020-23, nearly all tax payments and filings that would otherwise be due between April 1 and July 15, 2020, are now postponed to July 15, 2020. Most importantly, this would include any fiscal year tax returns due between those dates and any estimated tax payments due between those dates, such as the June 15 estimated tax payment deadline for individual taxpayers.

Economic Impact Payments for nonfilers

You have also likely heard about the cash payments the federal government is making to individuals under certain income thresholds. The Coronavirus Aid, Relief, and Economic Security (CARES) Act will provide an eligible individual with a cash payment equal to the sum of: $1,200 ($2,400 for eligible married couples filing jointly) plus $500 for each qualifying child. Eligibility is based on adjusted gross income (AGI).

On its Twitter account, the IRS announced that it deposited the first Economic Impact Payments into taxpayers’ bank accounts on April 11. “We know many people are anxious to get their payments; we’ll continue issuing them as fast as we can,” the tax agency added.

The IRS has announced additional details about these payments:

  • “Eligible taxpayers who filed tax returns for 2019 or 2018 will receive the payments automatically,” the IRS stated. Automatic payments will also go out to those people receiving Social Security retirement, survivors or disability benefits and Railroad Retirement benefits.
  • There’s a new online tool on the IRS website for people who didn’t file a 2018 or 2019 federal tax return because they didn’t have enough income or otherwise weren’t required to file. These people can provide the IRS with basic information (Social Security number, name, address and dependents) so they can receive their payments. You can access the tool here: https://bit.ly/2JXBOvM

This only describes new details in a couple of the COVID-19 assistance provisions. Members of Congress are discussing another relief package so additional help may be on the way. We’ll keep you updated. Contact us if you have tax or financial questions during this challenging time.

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IRS Section 139 - Qualified Disaster Relief Payments

As the impact of the Coronavirus pandemic continues to grow some businesses may be inclined to provide additional assistance to their employees on top of the current relief bills, especially in cases where businesses have shifted to a remote workforce.  There may be a way to provide such assistance while doing so in a tax efficient way. When the President declared a national emergency, the door to Internal Revenue Code Section 139 was opened.  

Section 139 allows "qualified disaster relief payments" to be excluded from employees' taxable wages which includes amounts paid for "reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster."  Employers are also allowed to deduct payments under Section 139 as a normal business expense.

Usually, Section 139 is applied in the context of a natural disaster in which property needs to be repaired or replaced, or people need to find temporary housing while they are unable to use their residences. All of those types of expenses are clearly covered by Section 139. The Coronavirus pandemic is causing different types of economic damages, including increased medical and child care expenses as a result of schools being closed, expenses for setting up home office, increased expenses related to obtaining normal living items etc. To the extent that an employee incurs additional reasonable and necessary personal, family, or living expenses as a result of the disaster, they would qualify under Section 139. It's also important to remember that Section 139 doesn't apply to any expenses that are reimbursed, such as by insurance or to normal living expenses (such as mortgage payments, utilities, or food). Types of expenses that may qualify as additional reasonable and necessary personal, family or living expenses as a result of the Coronavirus may be:

  • Over-the-counter medications, hand sanitizer and home disinfectant supplies.
  • Child care or tutoring due to school closings.
  • Work-from-home expenses such as setting up a home office, increased utilities expenses and higher Internet costs.
  • Increased commuting costs, such as taking a taxi instead of using public mass transit.
  • Unreimbursed health-related expenses.

Section 139 does not impose any limit on the amount or frequency of qualified disaster payments nor are employees required to provide receipts or other proof supporting their expenses, provided that the amount of the payments can be reasonably expected to commensurate with the expenses incurred.

It is recommended that the employer have a written qualified disaster relief payment plan along with other documentation, which would include:

  • The amounts paid and to whom;
  • The start and end date of the program;
  • A general listing of the expenses that will be paid or reimbursed on behalf of the employees, and;
  • The maximum amount the employer will pay per-employee or in the aggregate.

Payments for lost wages are not covered under Section 139.

Please consult your tax advisor or attorney for more information if you are interested in learning more about disaster relief payments to employees.

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IRS Extends More Tax Deadlines to Cover Individuals, Trusts, Estates, Corporations, Non-profits and Others

To help taxpayers, the Department of Treasury and the Internal Revenue Service announced today that Notice 2020-23 extends additional key tax deadlines for individuals and businesses.

Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due.

Today's notice expands this relief to additional returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations, non-profits and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

Specified forms: Federal tax forms and payments covered by the relief include:

  • Individual income tax payments and return filings on Form 1040, U.S. Individual Income Tax Return, and other forms in the 1040 series;
  • Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, U.S. Corporation Income Tax Return, and other forms in the 1120 series;
  • Calendar year or fiscal year partnership return filings on Form 1065, U.S. Return of Partnership Income, and Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;
  • Estate and trust income tax payments and return filings on Form 1041, U.S. Income Tax Return for Estates and Trusts, and other forms in the 1041 series;
  • Estate and generation-skipping transfer tax payments and return filings on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and other forms in the 706 series;
  • Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, and any supplemental Form 8971;
  • Gift and generation-skipping transfer tax payments and return filings on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, that are due on the date an estate is required to file Form 706 or Form 706-NA;
  • Estate tax payments of principal or interest due as a result of an election made under Secs. 6166, 6161, or 6163 and annual recertification requirements under Sec. 6166;
  • Exempt organization business income tax and other payments and return filings on Form 990-T, Exempt Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e)); and
  • Excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, and excise tax payments and return filings on Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code.

Extension of Time to File Beyond July 15

Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to Oct. 15, 2020, by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.

Estimated Tax Payments

Besides the April 15 estimated tax payment previously extended, today's notice also extends relief to estimated tax payments due June 15, 2020. This means that any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.  

2016 Unclaimed Refunds – deadline extended to July 15

For 2016 tax returns, the normal April 15 deadline to claim a refund has also been extended to July 15, 2020. The law provides a three-year window of opportunity to claim a refund.  If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the July 15, 2020, date.

State and Local Responses

Please note these deadlines are for Federal filings and payments only. There may still be some state filing or payment requirements. Please contact us for additional information.

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