After a three-month extension, the tax deadline is nearly here! We’ve recapped some important COVID-19 related federal tax relief measures small business owners need to know about ahead of the new 7/15 deadline.
Postponed federal tax payment deadlines
Individual taxpayers can defer until July 15 federal income tax payments that would otherwise be due on April 15. This relief covers any remaining amount owed with your 2019 Form 1040 and an estimated 2020 tax payment that would otherwise be due on April 15
The same goes for federal income tax payments. These that would otherwise be due on April 15 for C corporations, trusts, and estates that use the calendar year for tax purposes.
Individuals who owe federal gift tax and generation-skipping transfer tax (GSTT) for the 2019 tax year can defer payments of those taxes that would otherwise be due on April 15.
There are no limits on the number of tax payments that can be deferred, and no interest or penalties will be charged during the deferral period.
Postponed federal tax returns filing deadlines
Deadlines to file the following returns that would otherwise be due on April 15 are postponed to July 15.
- 2019 individual federal income tax returns (Form 1040)
- 2019 federal income tax returns for C corporations (Form 1120) that use the calendar year for tax purposes
- 2019 federal income tax returns for trusts and estates (Form 1041) that use the calendar year for tax purposes.
- 2019 federal gift tax and GSST returns (Form 709).
These returns would otherwise be due on April 15, but you now have until July 15 to file them without having to submit an extension request to the IRS.
More payment and filing postponements
The IRS has also announced that almost all federal tax payment and filing deadlines that would otherwise fall between April 1 and July 15 are automatically postponed to July 15 without any taxpayer action needed. This new relief mainly affects 2020 estimated tax payments that would otherwise be due on June 15 and federal income tax returns for taxpayers that use a fiscal year (rather than the calendar year) for tax purposes.
Postponed deadlines for making 2019-tax-year contributions to IRAS and HSAs
The normal April 15 deadline for making IRA and health savings account (HSA) contributions for your 2019 tax year is postponed to July 15.
Small employer tax credits and payroll tax relief to cover required COVID-19-related employee paid leave
You may qualify for the Small Business Health Care Tax Credit that could be worth up to 50% of the costs you pay for your employees’ premiums (35% for non-profit employers). For details on this relief, click here.
Employee retention tax credit for all eligible employers
The CARES Act grants so-called employee retention credit. The credit amount equals 50% of eligible employee wages paid by an eligible employer in a 2020 calendar quarter. The credit is subject to an overall wage cap of $10,000 per eligible employee. For details, see here.
Warning: no double tax benefit allowed: The 50% employee retention credit cannot be claimed for COVID-19-related required employee leave payments mandated by the FFCRA for which the aforementioned federal payroll tax credits are claimed. Also, the 50% employee retention credit cannot be claimed for employee wages taken into account in claiming the pre-existing work opportunity tax credit or the pre-existing tax credit for paid family and medical leave.
Payroll tax deferral relief for all employers and self-employed individuals
Under the payroll tax deferral relief offered by the CARES Act, your business can defer the 6.2% employer portion of the Social Security tax component of FICA tax owed on the first $137,700 of an employee’s 2020 wages — for wages paid during the deferral period. The deferral period began on the 3/27/20 and will end on 12/31/20. Your business must then pay the deferred payroll tax amount in two installments:
* Half of the deferred amount must be paid in by 12/31/21
* The remaining half must be paid in by 12/31/22.
This payroll tax deferral deal is available to all employers, with no requirement to show any specific COVID-19-related impact.
If you are self-employed, you can defer half of your liability for the 12.4% Social Security tax component of the self-employment (SE) tax for the deferral period. The deferral period began on 3/27/20 and will end on 12/31/20. You must then pay the deferred SE tax amount (we don’t yet know how to calculate that amount) in two installments:
* Half by 12/31/21
* The remaining half by 12/31/22.
Retroactive tax relief measures open up opportunities to file amended returns and recover taxes paid in earlier years
Some of the tax relief measures offered by the CARES Act are retroactive. Retroactive relief can affect 2018 and 2019 returns that have already been filed for you or your business. One retroactive relief provision can, in some cases, go all the way back to 2013.
Here’s a summary of the CARES Act retroactive tax relief measures that can potentially benefit you or your business entity after amended prior-year returns have been prepared and filed.
THERE YOU HAVE IT – Yes, it’s a lot of info to process but be sure to consult your tax professional or accountant to make sure you’re taking the proper steps so that you can benefit from these relief measures.