Observations on recent pandemic tax changes and a few more needed

I think the administrative and legislative changes to address health and financial problems of the global coronavirus pandemic has led tax practitioners to spend more time figuring it all out than was needed for tax reform change of the Tax Cuts and Jobs Act!  Of course, the timing of dealing with this right now is more significant than with the TCJA.

I won't go through all of the changes since there are many other sources, such as the following:

• IRS Coronavirus website and lots of links
• Treasury Department info for small businesses
• SBA loan information
• Dept. of Labor and required paid leave changes
• AICPA Coronavirus Resource Page
• AICPA State Tax Chart (very detailed and up-to-date)

A few observations:

• What will people do with their 2020 recovery rebates (referred to as economic impact payment by the IRS)? Most individuals will get $1,200 tax free. A married couple will get $2,400. Parents with children under age 17 will get $500 per child. There are phase-outs based on income (using either 2018 or 2019 tax return info generally). The Washington Post has a nice online calculator to help you determine your rebate amount.
• The folks at Money Done Right estimate that 43% of recipients will use their check to pay debt. See their website for the details.
• Recipients should also check if lenders will give them extensions without extra fees or interest expense if they have other needs as well, such as rent.
  
• Federal and most state income tax returns for 2019 that are normally due on April 15 have been extended to July 15.  Be sure to check for your state as a few are using a different date.
• Individual expecting a refund should file soon if they need the funds.
• Money Done Right also has data showing that less than 20% of individual expect to wait until July 15 to file for 2019. That makes sense since many individuals get a refund due to overwithholding during the year (often purposefully done as a savings plan).
• States use a fiscal year ending June 30. They will face challenges of having payments normally due April 15 and June 15 due July 15, yet, most, including California have done this.
• Recommendation: States should put out a plea to high-income individuals to make their payments for any tax due for 2019, as well as first quarter and second estimated tax payments for 2020 by June 15 or earlier. I think this will help states with their increased spending due to the pandemic and will reduce the need to borrow as much.
  
  
• Practitioners:
• Find some way to stay sane despite the overwhelming amount of changes particularly for practitioners helping small business clients.
• When relying on any FAQ, print it off because these are not binding but hopefully the IRS will follow them in the future, such as during an audit of a 2019 or 2020 return.
• A lot of the changes, such as for paid leave and SBA loans are not tax provisions so tread carefully in offering any interpretations. A challenge is that clients often don't have anyone else to turn to for financial assistance. Also, some of these items tie to tax rules. For example, HR 6201 (P.L. 116-127) and the required paid leave matches the amount of payroll credits employers get. So, an understanding of the leave rules coordinated by the Dept. of Labor is needed to help a client figure out their payroll tax obligations and timing. And of course, many practitioners have employees so need to know how these rules - tax and non-tax, apply to their own firm.
• Documentation: Remind clients (and yourselves) to get documentation now, such as why HR 6201 sick or family/medical leave was given to an employee for which payroll credits were claimed.  Likely better to get it now than later.
  
  
• More Ideas for Tax Law Changes to Help in Dealing with the Pandemic
• I offered several in a March 13 blog post (most of where were enacted).
• Relax the home office rules under Section 280A now that so many are working from home:
• Modify the requirement that the office has to be used exclusively for work. This also needs to be done to modernize this rule to reflect today's ways of working and living (as suggested last year by the AICPA).
• Relax the principal place of business rule for 2019 since many business owners are working at home.
• Make it clear that if employers reimburse employees for use of their home office, it is allowed without the need to prove that it was for the convenience of the employer.
• The TCJA disallows a deduction for parking and transit passes provided to employees. With employees working at home, employers are still paying these expenses, particularly the parking. Repeal this rule at Section 274(a)(4) at least for 2019 to help employers.
• Push the federal income tax estimated tax payment due June 15 (still) to July 15 or later. It is too confusing for the second payment to be due before the first payment. Also, June 15 is likely to early. For example, Virginia has a shelter-in-place order through June 10 and perhaps other states will as well.
• Additional filing and payment is needed. See the AICPA's April 2 letter to IRS and Treasury on this.

What do you think? What additional suggestions do you have?

Stay safe please.

Tax Change Ideas to Address Coronavirus Costs

The coronavirus pandemic is scary. Thousands of people are afflicted and there is uncertainty as to what will happen next. To reduce the spread, many public venues are shut down. While many workers can continue to work at home, not all can. How, for example, does a hotel, store, and other affected businesses and their workers make it through this hardship both in terms of health and financial survival?

Some businesses may have insurance or reserves that can help. Given this is a tax policy blog, I'm going to share some ideas about tax changes that can free up and provide some financial resources for workers and businesses.  I hope you'll add your ideas in the comments.

Also, H.R. 6201, Families First Coronavirus Response Act might get enacted soon. It provides a variety of relief although is limited in tax relief. It includes:

• expand unemployment benefits

• exclude from income any "emergency leave benefits"

Here are some tax changes I suggest for consideration:

1. Postpone the March 15 and April 15 filing dates for taxpayers and preparers who were affected by the virus either because they were sick or had to reduce hours or had fewer employees due to the virus or local / state restrictions. But encourage all who can still meet the deadline to do so. The March 15 fix needs to happen with an official announcement from IRS and Treasury this weekend (ASAP)!
   
   The AICPA has already requested such relief (see 3/11/20 press release). Also see this AICPA state tax chart of what states have offered to date + additional resources from the AICPA.
2. Provide three more months for paying taxes without incurring a penalty. Likely this won't affect most taxpayers as they are going to file as soon as they can because they are getting a refund. But some who have filing delays might also have delays in getting a good handle on what they owe, or need the funds for living expenses. Perhaps add a caveat that the penalty relief is for those facing financial hardship at April 15 or are unable to get assistance or access to records needed to accurately compute their 2019 liability. This could be provided only for individuals and businesses with income below a specified level (but a level high enough to capture 90% of individuals).
3. Increase the EITC by a set percentage. Since the EITC is for workers, it will benefit a group in need of relief. Many of these individuals likely already filed their 2019 returns. The IRS can do the calculations and issue refunds. Also increase the EITC for 2020. States should do the same (most states also have an EITC, but not all).
4. Allow individuals below a certain income level to claim a casualty loss for lost wages or sole proprietor income where they can show they lost income due to shutdowns tied to the virus. Perhaps for 2020 they attach a new schedule to their return where they explain what happened and perhaps it only applies if their 2020 AGI is less than 2019 AGI ignoring investment income and retirement distributions. This loss should be allowed for AGI. Yet, this isn't a big help because it won't hit until they file 2020 returns and as a deduction for a low bracket taxpayer, the savings would be low. But, still, some relief as many individuals will struggle beyond the end of the pandemic to get back to some financial stability.
5. Allow above the line deduction for costs of virus testing and medical expenses for individuals affected by the virus.  And as with presidentially-declared disasters, they can claim this on their 2019 return. Waive the 10%-of-AGI and $100 casualty limits and the need to have insurance.
6. Provide a direct payment to low-income individuals similar to what was done with the American Reinvestment and Recovery Act of 2009 which, for stimulus purposes, provided $400 for single and $800 for married. These amounts likely need to be larger. due to government funding challenges and benefit people who lost income due to the virus, payments should just go to employees and Schedule C filers. A payroll tax cut is another good way to deliver this to employees (although it would take longer), but there should also be a way to get it to Schedule C filers below the specified income level.
7. Allow individuals to pull a maximum amount of their retirement account without penalty and the ability to put it back in within the next five years. If they are below retirement age, it is taxable, but for those who lost income, the tax should be minimal. They should be encouraged to withdraw with at least 10% withheld to be sent to IRS as part of the tax payment.
8. Provide a tax credit to employers who continue to pay workers even if they can't work.  This is usually done in disaster tax relief packages although the credit is not too large (40% on up to $6,000 of wages). This could be increased and a system could be created to allow employers to claim it in advance of filing their 2020 tax return.
9. While the Tax Cuts and Jobs Act of 2017 repealed the ability to carry back losses, individuals and businesses should be allowed to carry back a loss for at least three years (likely sufficient given our strong economy of recent years), with consideration using today's rate structure, so for example, not allowing today's deductions in a 21% corporate tax environment to get a 35% rate benefit when carried back to pre-2018 years.
10. The TCJA offered simplified accounting methods, such as use of the cash method, to businesses with average annual gross receipts in the past three years of $25 million or less (now $26 million adjusted for inflation). Increase this to $35 million. This would help companies between $26 and $35 million of gross receipts as the change likely creates a negative "481(a) adjustment" for the year of change. And, allow the year of change to be either 2019 or 2020. While this lowers their tax for the year of change, it doesn't affect lifetime income, so isn't really a loss of revenue for the government, just a postponement. The dollar amount could even be increased. Also, it could be with the caveat that in five years, the threshold goes back to $26 million and they change back (that positive adjustment gets picked up in taxable income over four years).
11. Offer tax incentives to companies who make their products or services available to the public where these offerings help people to work remotely.
12. Encourage the well-off to help. For example, increase the qualified charitable distribution amount to $500,000 for 2020 if the donation is made to a state or local government for pandemic relief. Also, lower the age form 70 1/2 to enable those well-off and younger with extra large retirement accounts to pull the funds out to help.
13. Enact the TCJA technical correction to make qualified improvement property have a 15-year life so it is eligible for 100% bonus depreciation. This may help some businesses that have to shut down for customers but may find safe ways to have workers stay and do improvement work. This change could also include a tax credit for modernization and deep cleaning work a business performs within specified guidelines.
14. Encourage states to also come up with programs to help, including temporary hiring of folks who have lost jobs or hours at hotels, airports, arenas, etc.  Also encourage state and local governments to help subsidize costs of screening and helping people to work remotely. Some people might have trouble working remotely because they don't have the right equipment at home. State and local governments, as well as some nonprofits, may be able to bulk purchase and distribute iPads, temporary subscriptions to conferencing tools, etc.

What would you modify or add to this list?