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COVID-19 Federal Tax Updates

March 23, 2020

Harry Miller is Chair of Burns & Levinson’s Tax and Tax Controversy & Litigation groups. He focuses his practice on tax matters, including corporate and partnership tax matters, mergers and acquisitions, international taxation, nonprofit organizations, and estate planning. He can be reached at hmiller@burnslev.com or 617.345.3236

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***Since the publication of this article, further updates have been announced. Please click here for more information.

In response to the COVID-19 pandemic, there have been several important updates relating to federal income tax return filing and payment due dates and paid tax leave credits. Here are the key updates to keep top of mind.

Federal income tax return filing and payment due date has been extended. Pursuant to authority provided by President Trump’s March 13 emergency declaration in response to the ongoing COVID-19 pandemic, Treasury has extended certain federal tax return filing and tax payment deadlines. In a press conference on March 17^th, Treasury Secretary Mnuchin announced that individuals and corporations with a federal income tax payment due on April 15^th can delay making tax payments and filing returns, subject to certain limitations, for 90 days from the April 15^th due date. The IRS released Notice 2020-17 and 2020-18, providing more detailed guidance on the administration and procedure around the extended due date for tax payments and filing returns.

What are the new date details? For most taxpayers with a federal income tax return or federal income tax payment due on April 15, 2020, the due date for such tax return filing or tax payment has been automatically postponed to July 15, 2020. There is no limitation on the amount of the tax payment that may be postponed.

Is the postponement relief available to all forms of tax? Postponement relief is available solely with respect to federal income tax payments, including payments of tax on self-employment income, and federal income tax returns due on April 15, 2020 for the 2019 tax year; and federal estimated income tax payments, including payments of tax on self-employment income, due on April 15, 2020, for the 2020 tax year.

Will there be penalties? No interest or penalty will accrue during the period beginning on April 15, 2020 and ending on July 15, 2020 for failure to file federal income tax returns or to pay postponed federal income taxes.

What are the coronavirus-related paid leave tax credits? Small and medium size employers may be entitled to a 100% expedited tax credit for COVID-19 related sick leave and family medical leave payments made to their employees. H.R. 6201 was signed into law March 19^th. It puts in place mandatory sick leave and paid family leave for employers with 500 or less employees. There are exceptions to its application for certain employers.

Mandatory Sick Leave Details:
Under the new sick leave law, an employee of a covered employer will be entitled to 80 hours (for full time employees) or the average hours worked in a two-week period (for part-time employees) if they are unable to work (or telework) for any of the following reasons:

The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19.
The employee has been advised by a healthcare provider to self-quarantine because of concerns related to COVID-19.
The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
The employee is caring for an individual who is subject to an order as described in (1) or has been advised as described in (2).
The employee is caring for a child of such employee if the school or place of care of the child has been closed, or the child care provider of such child is unavailable, because of COVID-19 precautions.
The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Treasury secretary and the labor secretary.

Employees on sick leave for reasons (1) through (3) above are entitled to receive 100% of their normal compensation (capped at $511 per day or $5,110 in aggregate). All others are entitled to 2/3 their normal compensation (capped at $200 per day or $2,000 in aggregate).

Paid Family Leave Details:
An employee who is unable to work (or telework) because they must care for their minor son or daughter as a result of school or places of care closings, or as the result of a COVID-19 related unavailability of their child care provider, is entitled to paid leave.

Paid family leave is in addition to sick leave and is available for 10 weeks (possibly entitling an employee to 12 weeks of total paid leave). Those on paid family leave are entitled to 2/3 of their normal compensation (capped at $200 per day or $10,000 in aggregate).

What are the tax credits available to employers? A tax credit is available to employers with respect to the paid leave required under the provisions of H.R. 6201. The tax credit is equal to 100% of the sick leave payments and paid family leave payments (taking into account the respective caps on each) and may be increased in relation to associated health insurance costs. The credit is refundable. Mechanically, an employer is allowed to utilize the funds it has withheld for payroll, Social Security and Medicare from all employees to make sick leave and paid family leave payments. Rather than remitting 100% of those funds each period (as would be normal), an employer may deduct what it has paid out and remit what is left to the IRS. If an employer is paying out more in sick leave and paid family leave than it is withholding from wages, it may claim a refund payment from the IRS. It is to be an expedited refund process. The IRS has promised to issue further guidance on the mechanics of the tax credit this week.

The amount of any credits must be added back to the employer’s gross income for federal income tax purposes in order to avoid a double benefit—the wage expense and the add back are offsetting.

Will there be enforcement action for non-compliance? There will be enforcement action for non-compliance but any enforcement is on hold for 30 days. No action will be taken or penalties imposed as long as an employer is making a good faith effort to comply.

We will be updating our resource center regularly with breaking news and insights. Please be sure to check back for new information or reach out to the attorneys at Burns & Levinson for guidance.