Tax Authorities Issue Guidance on Tax Relief Due to the Covid-19 Pandemic

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Federal
On Tuesday, March 17, 2020, Treasury Secretary Mnuchin announced that the IRS will waive interest and penalty charges on federal tax payments due April 15, 2020 for 90 days. This was in response to the coronavirus outbreak (COVID-19). Quickly thereafter the IRS released Notice 2020-17 (Wednesday, March 18, 2020) providing guidance on the 90-day extension.

Here are some key elements of Notice 2020-17 that you should be aware of:

  • The relief provided relates to federal income tax payments (including tax on self-employment income) due April 15, 2020.
  • As it relates to any taxpayer, other than a C corporation, the due date for making federal income tax payments due April 15, 2020, in an aggregate amount up to $1 million, is postponed until July 15, 2020.
  • The $1 million deferral limit is the same for a single individual and for married individuals filing a joint return. Both instances apply the same $1 million threshold.
  • The relief provided relates to federal income tax payments (including tax on self-employment income) due April 15, 2020.
  • C corporations can postpone payment of up to $10 million of income tax payments from April 15, 2020, to July 15, 2020.
  • The relief also relates to federal estimated income tax payments (including tax on self-employment income) due April 15, 2020 for the 2020 taxable year.
  • Any interest, penalties, or addition of tax due to failure to pay will not imposed during this same period up to July 15, 2020.

Limitations on the deferral

While the IRS deferral of tax payments can provide much needed cash flow relief in the wake of COVID-19, there are several limitations on the deferral:

  • The deferral (of the payment) currently does NOT override the filing of extensions, returns, or information returns.
  • The deferral only applies to 2019 return payments and 2020 estimated tax payments due on April 15, 2020. That means fiscal year-end taxpayers that have a tax payment due after April 15, 2020, but before July 15, 2020, are not eligible for the deferral. Likewise, fiscal year-end taxpayers with an estimated tax payment due on April 15, 2020 on account of the 2019 tax year do not appear to be eligible for the deferral.
  • The deferral does not apply to second-quarter estimated tax payments that will be due June 15, 2020.
  • The deferral of tax payments only applies to federal income taxes. For example, it does not apply to payroll, gift, estate, or excise taxes. The deferral does not apply to 2019 IRA contributions due on April 15, 2020.
  • The threshold amounts eligible for deferral are considered on an aggregated basis. For example, an individual with a 2019 income tax liability and a 2020 estimated tax payment liability can only defer up to $1 million on a combined basis.

If an extension is filed, a reasonable estimate of the 2019 tax liability is required to be reported on the extension. Consequently, you may be required to come up with a reasonable estimate of your tax by April 15, 2020 even if you defer the entire payment until July 15, 2020.

State of California
The California Franchise Tax Board (FTB) announced on March 18, 2020 special tax relief for all California taxpayers due to the COVID-19 pandemic.  The special tax relief applies to individuals and business entities with a California return or payment due between March 15, 2020 and July 15, 2020. This includes Corporations, S-Corps, LLCs, Partnerships, and other entity types with returns or payments due during this period.

The FTB is postponing until July 15, 2020 the filing and payment deadlines for:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

To give taxpayers a deadline consistent with that of the Internal Revenue Service without the federal dollar limitations, the FTB is following the federal relief described in Notice 2020-17. Since California conforms to the underlying code sections that grant tax postponements for emergencies, FTB is extending the relief to all California taxpayers. Taxpayers do not need to claim any special treatment or contact the FTB to qualify for this relief.

Other States
Each state is expected to enact their own tax relief due to the COVID-19 pandemic and may not conform to the relief provisions described in federal Notice 2020-17.  Please consult your WNDE tax professional for information on tax relief for your state.

The information contained herein is as of March 19, 2020.  We continue to receive information from the federal and state governments daily and, as such, the rules and interpretations of those rules are subject to change.