What Taxpayers Should Know about the Coronavirus Pandemic
March 19, 2020 by Joshua Smeltzer
UPDATE – On Saturday, March 21, 2020, the IRS issued an official announcement that the filing due date, as well as the payment due date, is extended until July 15, 2020. Therefore, taxpayers can defer both filing and payment of taxes, without penalties and interest, until July 15, 2020. The IRS also removed the limitations on the extension based on amounts owed. The deferment applies, regardless of amount owed, to all taxpayers including individuals, trusts and estates, corporations, and other non-corporate filings, as well as those who pay self-employment tax.
UPDATE – On Friday, March 20, 2020, Treasury Secretary Steven Mnuchin announced on Twitter that the administration has moved the IRS deadline for filing taxes from April 15 to July 15 due to the disruption caused by the coronavirus. The original extension only applied to the deadline for payment and not filing, but this recent statement would extend both deadlines.
Worldwide the coronavirus (COVID-19) pandemic has sickened more than 209,300 people and approximately 8,787 people have died. Locally, people in the DFW metroplex are seeing daily reports of new COVID-19 cases and people left in critical condition from the disease. As people do what they can to keep themselves and their families safe the last thing they want to think about is taxes. The IRS has a special webpage to update taxpayers and tax professionals on the latest tax related information. The following is a summary of the current and potential additional tax relief resulting from the COVID-19 pandemic.
April 15th Tax Payments are Extended until July 15th
The IRS announced that the looming April 15th deadline for paying 2019 taxes will be extended for 90 days. The IRS issued an official notice (Notice 2020-17) extending the due date for Federal income tax payments, normally due April 15, 2020, to July 15, 2020. This extension applies to payments due of up to $10 million for corporations and up to $1 million for individuals. The extension does not automatically change the April 15, 2020 deadline to file your tax return, unless you file a separate request for extension, only the requirement to pay amounts due. The reason for the extension, according to the government, is to provide approximately $300 billion of additional liquidity in the economy.
Many taxpayers are familiar with the automatic six-month extension of time to file their U.S. Individual income tax return by filing Form 4868. However, this extension of the time to file does not extend the time to pay and taxpayers must estimate and pay amounts due or face potential penalties and interest. This extension to pay allows taxpayers to keep amounts due for an additional 90 days to help with current expenses. However, if you are due a refund you should file your return on time, or sooner, so those amounts can be refunded as soon as possible and provide funds during this time of need.
Taxpayers with Health Savings Accounts (HSAs)
Many taxpayers contribute eligible pre-tax dollars annually into Health Savings Accounts (HSAs). If the contributions are deemed eligible the amounts grow tax-free as long as those amounts are used for qualified medical expenses (e.g., co-pays, deductibles for prescriptions). A condition of an HSA plan is that the individual participates in a high-deductible health plan, which requires that the plan have no disqualifying health coverage. IRS Notice 2020-15 clarified that testing and treatment of COVID-19 would not cause taxpayers with HSAs to fail to be eligible individuals. The IRS Notice allows high-deductible health plans to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost sharing agreement that might cause a financial disincentive for testing or treatment. Some practitioners claim that further guidance on the precise definition of treatment is needed to ensure that all types of treatment for COVID-19 are covered and won’t cause eligibility problems. However, the guidance does remove some concerns for those taking advantage of HSAs as part of their health care coverage.
Tax Disputes and Collection Activity
The IRS has not been very forthcoming on how it expects to handle current tax disputes and collection action pending at the IRS. Absent statutory concerns, the IRS generally has discretion to offer extensions on deadlines and other relief related to tax disputes at the IRS. Also, the IRS offers several collection alternatives to taxpayers who cannot pay amounts owed such as offers in compromise and installment agreements. Taxpayers currently facing enforced collection activity (i.e., liens and levies) or who are disputing IRS assessments may find an already stressful process more cumbersome by the restrictions caused by the COVID-19 pandemic. Taxpayers and their representatives should contact the assigned Revenue Officer or Revenue Agent to discuss and request any required relief as a result of the pandemic and document that relief, if provided, in writing so that their rights to challenge an assessment or seek review and relief of a tax determination is preserved. Although the United States Tax Court closed on March 18, 2020, taxpayers must still comply with statutory deadlines and the mailing of petitions or notices of appeal will be held for delivery until the Tax Court opens.
Potential Additional Tax Relief
Several other tax relief proposals have dominated the news and there is pending legislation making its way through Congress. This includes relief from payroll tax responsibilities to allow for more paid sick leave for workers, affordable health care coverage for coronavirus patients, child care funding, and changes to unemployment insurance. Taxpayers and their advisors will continue to watch the news for any updates that might ease the financial and tax burdens as the country and world attempt to contain the effect of the pandemic.