Coronavirus Tax Regulations: Impacts on Pitcairn ClientsBy Matthew R. Hilbert, CPA - Director of Tax
In response to the growing coronavirus pandemic, the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), were signed into law on March 18 and March 27, 2020, respectively. With much information published on both acts, we’ve highlighted the provisions we believe will most likely have an impact on your family.
Tax Filing Deadlines
On April 9, 2020 the IRS announced that Federal tax payments and return filings due between April 1 and July 15 are automatically extended to July 15 without penalty or interest. This includes any 2020 first and second quarter estimated tax payments due April 15 and June 15.
As of April 22, 2020, some states have not fully adopted these expanded provisions, but may in due course.
- AK, AZ, DC, HI, IL, LA, MN, OR, UT and VT, have stated that relief does not apply to estimates.
- NC will charge interest on payments received after April 15.
- VA pending legislation keeps the May 1 filing deadline, with payments delayed until June 1 – interest will accrue from original due date
- ID extends April 15 filing and payments to June 15 including estimates
- IN, KS, KY, ME, MI, MT, NE, NJ, NY, ND, OK, RI, TN and WI do not currently extend second quarter estimated payments due June 15. They previously extended first quarter estimates.
- NH has relief for personal tax liabilities less than $10,000 paid by June 15.
The CARES Act allows for a deduction of charitable contributions equal to 100% of Adjusted Gross Income. To qualify for the expanded allowance, the contributions must be made in cash to publicly supported charities. Contributions to non-operating private foundations and donor advised funds are excluded from this provision.
In addition, the Act provides for a $300 above-the-line deduction by individuals who claim the standard deduction.
Excess Business Losses and Net Operating Losses (NOLs)
The 2017 Tax Act imposed limitations on the ability of taxpayers to offset non-business income with business deductions for tax years 2018 - 2025. The act limited the losses to $250,000 ($500,000 for joint returns). The CARES Act retroactively modifies the loss limitation for excess business losses for 2018, 2019, and 2020. Taxpayers may have to file amended 2018 tax returns to take advantage of additional losses. The CARES Act also allows taxpayers a five-year carryback for losses arising in 2018, 2019, and 2020.
Individuals who earned more than $99,000 and couples who earned more than $198,000 jointly will not receive advanced rebates. However, for some affluent families there may be situations where the stimulus payment applies. Specifically, if a taxpayer is not allowed to be claimed as a dependent on another taxpayers’ return, that individual may qualify for the $1,200 credit. This may be possible for students age 19-23.
The key is whether the individual is allowed to be claimed as a dependent, not merely whether he or she is claimed. “Allowed to be claimed” is based upon support of the taxpayer. If parents provided more than half of the support of a full-time student age 19-23, that student is allowed to be claimed on the parent’s tax return, even if claiming the dependent does not provide any tax benefit. Often, these students are beneficiaries of trusts or custodial accounts from which tuition payments are made. In this case, that payment is support provided by the student.
The advanced rebate being paid at this time is based upon 2018 and 2019 tax returns. For those not eligible for the advanced rebate, there may be an opportunity to claim the credit on the 2020 tax return.
The CARES Act restores the ability to use HSAs, FSAs and HRAs to pay for certain over-the-counter (OTC) drugs and medications, like aspirin and other pain medications, allergy medication, etc., without a doctor’s prescription. For the first time, menstrual care products are also considered qualified medical expenses. Both provisions apply to amounts paid or expenses incurred on or after January 1, 2020.
The Act provides for voluntary forbearance on federal student loan payments from March 13, 2020 through September 30, 2020 and sets the interest rate at 0% over this timeframe. Please note that this provision does not apply to all student loans. Other commercial lenders may be providing relief.
Additionally, the Act allows employers to utilize funds in an Education Assistance Program (EAP) to pay off student loans tax-free for employees. The total payments allowed under the EAP is $5,250 per year.
The Pitcairn team will continue to monitor and inform you of any new and proposed legislation. The tax information provided here is based upon publicly available material published by the IRS. As always, we recommend contacting your tax preparer regarding your specific situation.