Congress and the Trump Administration have been moving swiftly to provide income tax relief to workers coping with the COVID-19 outbreak. It is a quickly moving target – here's what we now know.

Postponement of Annual Tax Payment (but Not Filing) Deadline

On March 17, Steven Mnuchin, U.S. Secretary of the Treasury, announced at a press conference that the Internal Revenue Service will postpone for many taxpayers the normally applicable deadline of April 15, 2020 for paying 2019 income tax. The postponement deadline will be available to:

  • Individuals owing $1 million or less in income tax for 2019 and
  • Corporations owing $10 million or less in income tax for 2019

Mr. Mnuchin added that the IRS will waive interest and penalties for not filing these returns and paying associated taxes by the normal due date of April 15.

The IRS also announced that notwithstanding the postponed deadline for paying tax, the Agency will continue to process requests for tax refunds.Taxpayers claiming refunds of 2019 taxes can file their returns as usual, and the IRS will process the requests for refunds.

Please note, however, an important distinction: although the IRS has announced that it will postpone the deadline for paying taxes, the Agency has not indicated that it will postpone any deadlines for filing tax returns. Taxpayers generally must still file their 2019 returns with the IRS by April 15, 2020. As usual, however, individuals may obtain an automatic extension of six months to file (until October 15) by filing with the IRS by April 15 Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Corporations may obtain an automatic extension (six months) of their filing deadline by filing IRS Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

Families First Coronavirus Response Act

The House of Representatives has passed and sent to the Senate the Families First Coronavirus Response Act. This bill, H.R. 6201, would provide income-tax relief intended to cushion the crush of the virus.

Paid Sick Time for Employees and Self-Insured Workers

Under the provisions of the bill, employers would have to provide workers at least:

  • Up to two weeks of paid emergency sick leave plus
  • Up to 90 days of paid family and medical leave

Like any other compensation, these payments presumably would be subject to income tax, which would be withheld from employees' paychecks. Self-employed workers, such as independent contractors, Form 1099 recipients, etc., would take the payments into account in making estimated tax payments (due four times during the year).

Tax Credits for Employers

Employers paying this leave would qualify for refundable tax credits to offset the employer's cost of paying the leave. A "refundable" tax credit may be taken regardless of the amount of an employer's income.

Employers presumably could pay as much leave as they care to pay, even if it exceeds the required minimums. However, in computing their allowable tax credits, employers can take into account no more than $511 per day per worker of qualified sick leave wages paid.

Implementation by the IRS

The House Bill would provide the IRS with $15 million to implement this new tax credit. Whenever a new kind of tax credit joins the tax law, the IRS must design and implement processes to handle it, including the creation of new tax forms.

It has been rumored that the IRS may also be tweaking its income tax withholding tables to address paid leave, although the reasons for it doing so or what the changes will be have yet to surface.

Next Step: The U.S. Senate

The U.S. Senate could modify these proposals when it considers the House Bill this week of March 16. The Senate could vote on the measures as soon as March 18.

Possible Additional Tax Relief

Additional possible tax relief from the COVID-19 outbreak is being discussed in Washington. One idea consists of temporarily cutting payroll taxes, most likely the amount workers must have deducted from their paychecks to fund Social Security. The other oft-discussed proposal consists of expanding the existing earned income tax credit. Broad-based fiscal relief could also involve tax provisions.

Like the course of the COVID-19 contagion, the rest of the story on associated tax relief remains uncharted. We will continue to provide updates as the situation evolves

Lewis Brisbois has formed a COVID-19 Attorney Response Team to help your business with the myriad legal issues arising from the outbreak. Visit our  COVID-19 Response Resource Center for additional alerts on this topic.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.