COVID-19 Update: Tax Relief for Nonprofits and Individuals
On March 27, 2020, the president signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion aid package designed to provide individuals, nonprofits, and businesses relief while they recover from the effects of the COVID-19 pandemic. While the focus of the legislation is not tax related, several tax provisions are included in the CARES Act. Below is a summary of key provisions of the Act and other tax relief applicable to nonprofits and individuals.
CARES Act relief for businesses, including nonprofits
Delay of Payment of Employer Payroll and Self-Employment Taxes. The CARES Act expands the payroll tax relief provided under the FFCRA by allowing employers to delay certain payroll tax payments due between the enactment date of the CARES Act and December 31, 2020. Instead, 50 percent of those taxes are required to be deposited by December 31, 2021, and the remainder deposited by December 31, 2022. Similar relief is also available for self-employed individuals. However, those taxpayers must continue to timely pay 50 percent of the social security tax portion of their self-employment taxes. Employers that are granted loan forgiveness under the Small Business Act loan program created by the CARES Act are not eligible for this deferral.
Employee/Payroll Retention Tax Credit. The CARES Act provides a payroll retention credit for employers whose businesses were fully or partially suspended due to a government order limiting commerce, travel, or group meetings due to COVID-19 or that had a decrease in gross receipts of 50 percent or more when compared to the same quarter last year, until their gross receipts exceed 80 percent of their gross receipts for the same calendar quarter in the prior year. Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages – up to $5,000 for each employee. For employers with more than 100 employees, eligible wages are those that the employer pays to employees who are not providing services or are working reduced hours due to the business suspension or drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.
Extension for Employers to Contribute to 2019 Qualified Retirement Plans. Because the federal income tax filing and payment due date is automatically extended from April 15, 2020 to July 15, 2020, employers may continue making contributions to their 2019 workplace-based retirement plans up to July 15, 2020.
CARES Act relief for individuals
Special Rules for 2020 Qualified Retirement Plans. The CARES Act waives the 10 percent penalty on early distributions of up to $100,000 from qualified retirement plans for individuals who are diagnosed with or have a spouse or dependent diagnosed with SARS-CoV-2 or COVID-19, experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work because of child care due to COVID-19, closing or reducing hours of business owned or operated by the individual due to COVID-19, or other factors determined by the IRS. Taxpayers may recontribute these amounts within three years of withdrawal without regard to the contribution cap. These distributions are otherwise taxable for federal income tax purposes, but taxpayers may elect to include the distribution as taxable income over a three-year period.
The CARES Act also provides a temporary waiver of the required minimum distribution rules for certain retirement plans and accounts for 2020.
Charitable Contribution Deductions. For taxpayers who do not itemize their deductions, the CARES Act provides an above the line deduction in 2020 up to $300 for charitable contributions made to qualifying 501(c)(3) public charities. For taxpayers who itemize their deductions, the Act temporarily increases the limit for contributions of food inventory from 15 percent to 25 percent. For individuals, the Act temporarily modifies the charitable deduction limit from 60% to 100% of adjusted gross income.
Exclusion for Certain Employer Payments of Student Loans
Through December 31, 2020, individuals who receive student loan repayment assistance up to $5,250 may treat the repayment as a qualified fringe benefit exempt from income tax.
Recovery Checks/Rebates for Individuals (Importance of Filing Tax Return). Under the CARES Act, individual taxpayers can expect to receive recovery rebates in the amount of $1,200 per individual ($2,400 for married couples filing jointly), plus $500 for each qualifying dependent child. This amount begins to phase out for taxpayers whose adjusted gross income exceeds $150,000 for joint returns, $112,500 for head of household, and $75,000 for all other taxpayers. The amount an individual receives is based on information reported on the taxpayer’s 2019 tax return (or 2018 if the taxpayer hasn’t filed a 2019 return). Those without a 2018 and/or 2019 tax return on file could potentially be affected.
The above recovery rebate is treated as an advanced refund of a taxpayer’s 2020 tax credit. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund payment they receive. This means taxpayers who receive a smaller rebate than they are eligible for based on 2020 income will receive the difference after filing a 2020 tax return; however, overpayments of rebates due to a higher income in 2020 will be forgiven.
Other relief for individuals and nonprofits
2020 Tax Filing and Payment Deadline. In March 2020, the IRS announced an automatic extension to July 15, 2020 to file and pay tax returns originally due on April 15, 2020, applicable to individuals, trusts and estates, corporations, and other non-corporate tax filers, as well as those who pay self-employment tax. In April 2020, the IRS extended the deadline to July 15, 2020 for taxpayers with a filing or payment deadline on or after April 15, 2020 and before July 15, 2020. This includes organizations with a Form 990 series return deadline of May 15, 2020 (all organizations operational in 2019 with a fiscal year ending December 31). See our COVID-19 tax filing and payment update for tax-exempt organizations here.
Filing or payment deadlines other than April 15, 2020, such as the May 15, 2020 Form 990 filing deadline for many nonprofits, have not been extended at this time. We will continue to provide updates on any other extended deadlines announced by the IRS.
Individual Retirement Account (“IRA”) Contributions. Because the due date for filing federal income tax returns has been postponed to July 15, the deadline for making contributions to an IRA for 2019 has also been extended to July 15, 2020.
Health Savings Accounts (“HSAs”) and Archer Medical Savings Accounts (“MSAs”). Individuals may make contributions to HSAs and MSAs for 2019 up to July 15, 2020.
Collection Activities (Liens and Levies). Existing liens and levies (including any seizures of a personal residence) initiated by the IRS will be suspended during this period. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted. New automatic, systemic liens and levies will also be suspended during this period. Further, new delinquent accounts will not be forwarded by the IRS to private collection agencies during this period.
Examinations (Audits). The IRS will generally not start new examinations during this time, whether they are field, office, or correspondence examinations. However, the IRS may start new examinations where deemed necessary to protect the government’s interest in preserving the applicable statute of limitations. For any existing examinations, the IRS will not hold in-person meetings; however, they will continue their examinations remotely, where possible. For refund claims, the IRS will continue to process these where possible without in-person contact.
Installment Agreements. Taxpayers under an existing IRS installment agreement may suspend their payments from April 1 through July 15, 2020. However, interest will continue to accrue on any unpaid balance. Taxpayers may still apply for a new installment agreement during this time.
Offers in Compromise (“OIC”).
- Pending OIC Applications. The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC. The IRS will not close any pending OIC request before July 15, 2020, without the taxpayer’s consent.
- OIC Payments. Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020. However, interest will continue to accrue on unpaid balances.
- Delinquent Return Filings. The IRS will not default an OIC for taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.
- New OIC Applications. Taxpayers may still apply for a new OIC during this time.
Statute of Limitations. The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period, the IRS encourages taxpayers to cooperate in extending such statutes. Otherwise, the IRS may issue Notices of Deficiency and pursue other similar actions to protect the government’s interest in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue actions until at least July 15, 2020, or until further announcement by the IRS.
Office of Appeals. Appeals activities will continue. Appeals conferences may be held by telephone or videoconference.
Tax-exempt Sector Determinations. The IRS will continue to process applications for recognition of tax exemption for exempt organizations, rulings, and determinations for employee plans and closing agreements for municipal issuers.
Passport Certifications to the State Department. Passport certification prevents taxpayers from receiving or renewing passports. The IRS will suspend new certifications to the Department of State for taxpayers who are seriously delinquent during this period. These taxpayers are encouraged to submit a request for an installment agreement or an OIC, if applicable, during this period.
We understand that tax law can be confusing during the best of times and even more so now. Please contact us if you have specific tax-related questions.