Taxes

Beware of “Wash Sales” When Selling Securities

Estate Planning, Personal Finance, Securities & Trading, Taxes / By

If you’re planning to sell capital assets at a loss to offset gains that have been realized during the year, it’s important to beware of the “wash sale” rule. Under this tax rule, if you sell stock or securities for a loss and buy substantially identical stock shares or securities back within the 30-day period before or after the sale date, the loss can’t be claimed for tax purposes.

The Wash Sale Rule

The wash sale rule is designed to prevent taxpayers from benefiting from a loss without parting with ownership in any significant way. Note that the rule applies to a 30-day period before or after the sale date to prevent “buying the stock back” before it’s even sold. (If you participate in any dividend reinvestment plans, the wash sale rule may be inadvertently triggered when dividends are reinvested under the plan, if you’ve separately sold some of the same stock at a loss within the 30-day period.)

Although the loss can’t be claimed on a wash sale, the disallowed amount is added to the cost of the new stock. So, the disallowed amount can be claimed when the new stock is finally disposed of (other than in a wash sale).

An Example

Assume you buy 500 shares of XYZ Inc. for $10,000 and sell them on November 5 for $3,000. On November 30, you buy 500 shares of XYZ again for $3,200. Since the shares were “bought back” within 30 days of the sale, the wash sale rule applies. Therefore, you can’t claim a $7,000 loss. Your basis in the new 500 shares is $10,200: the actual cost plus the $7,000 disallowed loss.

If only a portion of the stock sold is bought back, only that portion of the loss is disallowed. So, in the above example, if you’d only bought back 300 of the 500 shares (60%), you would be able to claim 40% of the loss on the sale ($2,800). The remaining $4,200 loss that is disallowed under the wash sale rule would be added to your cost of the 300 shares.

No Surprises

The wash sale rule can come as a nasty surprise at tax time. Contact us at Maggart for assistance.

Alternative Minimum Tax Less “Toothy” But May Still Take a Bite

Personal Finance, Taxes / By

For many years, the alternative minimum tax (AMT) posed a risk to many taxpayers in the middle- to upper-income brackets. The Tax Cuts and Jobs Act (TCJA) took much of the “teeth” out of the AMT by raising the inflation-adjusted exemption. As a result, middle-income earners have had less to worry about, but those whose income has substantially increased (or remains high) should still watch out for its bite.

Basic AMT Rules

The AMT was established to ensure that higher-income individuals pay at least a minimum tax, even if they have many large deductions that significantly reduce their “regular” income tax. If your AMT liability is greater than your regular income tax liability, you must pay the difference as AMT — in addition to the regular tax.

As mentioned, the TCJA substantially increased the AMT exemption for 2018 through 2025. The exemption reduces the amount of AMT income that’s subject to the AMT. The 2020 exemption amounts are $72,900 (for single filers), $113,400 (for married joint filers) and $56,700 (for married separate filers).

AMT rates begin at 26% and rise to 28% at higher income levels. That top rate is lower than the maximum regular income tax rate of 37%, but fewer deductions are allowed for the AMT. For example, you can’t deduct state and local income or sales taxes, property taxes and certain other expenses.

AMT Risk Factors

The AMT exemption phases out when your AMT income surpasses the applicable threshold, so high-income earners remain susceptible. However, even some taxpayers who consider themselves middle-income earners may trigger the AMT by exercising incentive stock options or incurring large capital gains.

For example, because the exemption phases out based on income, realizing substantial capital gains could cause you to lose part or all of that exemption and, thus, subject you to AMT liability. If it looks like you could get hit by the AMT this year, you might want to delay sales of highly appreciated assets until next year (if you don’t expect to be subject to the AMT then) or use an installment sale to spread the gains (and potential AMT liability) over multiple years.

Also, be aware that claiming substantial itemized deductions for expenses that aren’t deductible for AMT purposes used to be a major risk factor for falling into the AMT net. However, because the TCJA limited or eliminated some of these deductions for regular income tax purposes (such as the deduction for state and local taxes and miscellaneous itemized deductions subject to a 2% of adjusted gross income floor, respectively), this is now much less of a risk.

Appropriate Strategies

Since passage of the TCJA, the AMT may have become an afterthought for many people. However, it’s still worth a look to see whether it could create undesirable tax consequences for you. Please contact Maggart for help assessing your exposure to the AMT and, if necessary, implementing appropriate strategies for your tax situation.

With Glitch Fixed, Consider Business Property Upgrades

Business, Taxes / By

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March, has provided more than just relief in response to the COVID-19 pandemic. It also contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings, referred to as qualified improvement property (QIP).

Recent History of the Retail Glitch

When the Tax Cuts and Jobs Act was passed in 2017, it contained an inadvertent drafting error by Congress. The error made it so that any QIP placed in service after December 31, 2017, wasn’t classified as 15-year property and therefor wasn’t eligible for 100% bonus depreciation. So, the cost of QIP had to be deducted over a 39-year period rather than over a 15-year period or entirely in the year the QIP was placed in service.

Investments qualifying as QIP generally include upgrades to retail, restaurant and leasehold property. Hence, the problem became commonly known as the “retail glitch.”

The CARES Act Fix

Fortunately, when drafting the CARES Act, Congress fixed the retail glitch. Most businesses can now claim 100% bonus depreciation for QIP — or depreciate it over 15 years — assuming all applicable rules are followed. (Note that improvements related to a building’s enlargement, elevator or escalator, or internal structural framework don’t qualify.)

Because of the slowdown in the U.S. economy, your business (like so many others) may not be in a financial position to undertake a QIP project right away. But when investing in your business is looking feasible, factor this tax break into your considerations for making future property improvements.

Even if you can’t afford to invest in QIP this year, you might be able to enjoy some QIP tax benefits now. The correction is retroactive to any QIP placed in service after December 31, 2017. So if you made eligible improvements in 2018 or 2019, you may be able claim a tax refund.

Next Steps

While claiming 100% bonus depreciation may sound like a no-brainer, keep in mind that in some circumstances it might be more beneficial to depreciate QIP over 15 years. Either option can produce a tax refund for prior years; it’s just the size of the refund that will differ. Maggart can help you determine if your property improvement investments qualify as QIP and, if so, assess whether 100% bonus depreciation or 15-year depreciation is better for you.

Charitable Giving in a Time of Crisis

Money, Personal Finance, Taxes / By

The novel coronavirus pandemic has created much financial stress, but the crisis has also generated an intense need for charitable action. If you’re able to continue donating during this difficult period, the Coronavirus Aid, Relief, and Economic Security (CARES) Act may make it a little easier for you to do so, whether you’re a small or large donor.

Tax Benefits

From an income tax perspective, the CARES Act has expanded charitable contribution deductions. Individual taxpayers who don’t itemize can take advantage of a new above-the-line $300 deduction for cash contributions to qualified charities in 2020. “Above-the-line” means the deduction reduces adjusted gross income (AGI). You can take this in addition to your standard deduction.

For larger donors, the CARES Act has eased the limitation on charitable deductions for cash contributions made to public charities in 2020, boosting it from 60% to 100% of AGI. There’s no requirement that your contributions be related to COVID-19.

Careful Steps

To be able to claim a donation deduction, whatever the size, you need to ensure you’re giving to a qualified charity. You can check a charity’s eligibility to receive tax-deductible contributions by visiting the IRS’s Tax-Exempt Organization Search.

If you’re making a large gift, it’s a good idea to do additional research on the charities you’re considering so you can make sure they use their funds efficiently and effectively. The IRS tool provides access to detailed financial information about charitable organizations, such as Form 990 information returns and IRS determination letters.

Even if a charity is financially sound when you make a gift, there’s no guarantee it won’t suffer financial distress, file for bankruptcy protection or even cease operations down the road. The last thing you likely want is for a charity to use your gifts to pay off its creditors or for a purpose unrelated to the mission that inspired you to give in the first place.

One way to manage these risks is to restrict the use of your gift. For example, you might limit the use to assisting a specific constituency or funding medical research. These restrictions can be documented in a written gift or endowment fund agreement.

Generous Impact

Indeed, charitable giving is more important than ever. Contact Maggart for help allocating funds for a donation and understanding the tax impact of your generosity.

Keeping Up with the Net Operating Loss Rules

Business, Taxes / By

When a trade or business’s deductible expenses exceed its income, a net operating loss (NOL) generally occurs. When filing your 2019 income tax return, you might find that your business has an NOL — and you may be able to turn it to your tax advantage. But the rules applying to NOLs have changed and changed again. Let’s review.

Pre-TCJA

Before 2017’s Tax Cuts and Jobs Act (TCJA), when a business incurred an NOL, the loss could be carried back up to two years. Any remaining amount could then be carried forward up to 20 years.

A carryback generates an immediate tax refund, boosting cash flow. A carryforward allows the company to apply the NOL to future years when its tax rate may be higher.

Post-TCJA

The changes made under the TCJA to the tax treatment of NOLs generally weren’t favorable to taxpayers. According to those rules, for NOLs arising in tax years ending after December 31, 2017, most businesses couldn’t carry back a qualifying NOL.

This was especially detrimental to trades or businesses that had been operating for only a few years. They tend to generate NOLs in those early years and greatly benefit from the cash-flow boost of a carryback. On the plus side, the TCJA allowed NOLs to be carried forward indefinitely, as opposed to the previous 20-year limit.

For NOLs arising in tax years beginning after December 31, 2017, the TCJA also stipulated that an NOL carryforward generally can’t be used to shelter more than 80% of taxable income in the carryforward year. (Under previous law, generally up to 100% could be sheltered.)

COVID-19 Response

The NOL rules were changed yet again under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. For NOLs arising in tax years beginning in 2018 through 2020, taxpayers are now eligible to carry back the NOLs to the previous five tax years. You may be able to file amended returns for carryback years to receive a tax refund now.

The CARES Act also modifies the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can now potentially claim an NOL deduction equal to 100% of taxable income (rather than the 80% limitation under the TCJA) for prior-year NOLs carried forward into those years. For tax years beginning after 2020, taxpayers may be eligible for a 100% deduction for carryforwards of NOLs arising in tax years before 2018 plus a deduction equal to the lesser of 1) 100% of NOL carryforwards from post-2017 tax years, or 2) 80% of remaining taxable income (if any) after deducting NOL carryforwards from pre-2018 tax years.

Complicated Rules

The NOL rules have always been complicated and multiple law changes have complicated them further. It’s also possible there could be more tax law changes this year affecting NOLs. Please contact Maggart’s team for further clarification and more information.

Can You Qualify for the Payroll Tax Credit?

Business, Employment, Taxes / By

For many businesses, retaining employees has been difficult, if not impossible. If your company has been able to keep all or some of its workers, you may qualify for the payroll tax credit created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, known as the Employee Retention Credit.

Assessing Your Qualifications

The Employee Retention Credit provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees. The credit is available to employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings during the novel coronavirus (COVID-19) crisis.

The credit is also available to employers that have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. When such an employer’s gross receipts exceed 80% of the comparable quarter in 2019, the employer no longer qualifies for the credit beginning with the next quarter.

The credit is unavailable to employers benefitting from certain Small Business Administration loan programs or to self-employed individuals.

Examining Wages Paid

For employers that had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether an employee is furloughed or has experienced a reduction in hours.

For employers with more than 100 employees in 2019, only wages paid to employees who are furloughed or face reduced hours because of the employer’s closure or reduced gross receipts are eligible for the credit. No credit is available for wages paid to an employee for any period for which the employer is allowed a Work Opportunity Tax Credit with respect to the employee.

In the context of the credit, the term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee. Wages don’t include amounts considered for required paid sick leave or required paid family leave under the Families First Coronavirus Response Act. In addition, wages applicable to this credit aren’t taken into account for the employer credit toward paid family and medical leave.

Claiming Advance Payments & Refunds

The IRS can advance payments to eligible employers. If the amount of the credit for any calendar quarter exceeds applicable payroll taxes, the employer may be able to claim a refund of the excess on its federal employment tax return.

In anticipation of receiving the credits, employers can fund qualified wages by 1) accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS or 2) requesting an advance of the credit from the IRS on Form 7200, “Advance Payment of Employer Credits Due to COVID-19.” The IRS may waive applicable penalties for employers who don’t deposit applicable payroll taxes in anticipation of receiving the credit.

Obtaining Relief

The credit applies to wages paid after March 12, 2020, and before Jan. 1, 2021. Contact Maggart for help determining whether you qualify and, if so, how to claim this tax break.

How Employers Can Get Financial Relief with the Retention Tax Credit

Business, Employment, Taxes / By

To help reduce layoffs during the coronavirus (COVID-19) pandemic, the Coronavirus Aid, Relief and Economic Security (CARES) Act created a new federal income tax credit for employers that keep workers on their payrolls. The credit equals 50% of eligible employee wages paid by an eligible employer in a 2020 calendar quarter. It’s subject to an overall wage cap of $10,000 per eligible employee. Here are answers to some FAQs about the retention credit.

What Employers Are Eligible?

Eligible employer status for the retention credit is determined on a 2020 calendar quarter basis. The credit is available to employers, including nonprofits, whose operations have been fully or partially suspended during a 2020 calendar quarter as a result of an order from an appropriate governmental authority that limits commerce, travel or group meetings due to COVID-19.

The retention credit can also be claimed by employers that have experienced a greater-than-50% decline in gross receipts for a 2020 calendar quarter compared to the corresponding 2019 calendar quarter. However, the credit is disallowed for quarters following the first calendar 2020 quarter during which gross receipts exceed 80% of gross receipts for the corresponding 2019 calendar quarter.

To illustrate: Suppose a company’s 2020 gross receipts are as follows compared to 2019:

  • First quarter: 86%
  • Second quarter: 43%
  • Third quarter: 92%

The company had a greater-than-50% decline in gross receipts for the second quarter of 2020. So, it’s an eligible employer for purposes of the retention credit for the second and third quarters of 2020. For the fourth quarter of 2020, it’s ineligible because its gross receipts for the third quarter of 2020 exceeded 80% of gross receipts for the third quarter of 2019.

What Wages Are Eligible?

The retention credit is available to cover eligible wages paid from March 13, 2020, through December 31, 2020. For an eligible employer that had an average of 100 or fewer full-time employees in 2019, all employee wages are eligible for the credit (subject to the overall $10,000 per-employee wage cap), regardless of whether employees are furloughed due to COVID-19.

For an employer that had more than 100 full-time employees in 2019, only wages of employees who are furloughed or given reduced hours due to the employer’s closure or reduced gross receipts are eligible for the retention credit (subject to the overall $10,000 per-employee wage cap, including qualified health plan expenses allocable to those wages).

The amount of wages eligible for the credit is capped at a cumulative total of $10,000 for each eligible employee. The $10,000 cap includes allocable health plan expenses. For example, a company pays an employee $8,000 in eligible wages in the second quarter of 2020 and another $8,000 in the third quarter of 2020. The credit for wages paid to the employee in the second quarter is $4,000 (50% x $8,000). The credit for wages paid to the employee in the third quarter is limited to $1,000 (50% x $2,000) due to the $10,000 wage cap. Any additional wages paid to the employee are ineligible for the credit due to the $10,000 cap.

What Other Rules & Restrictions Apply?

The retention credit is not allowed for:

  • Emergency sick leave wages or emergency family leave wages that small employers (generally those with fewer than 500 employees) are required to pay under the Families First Coronavirus Response Act (FFCRA), because they’re covered by federal payroll tax credits granted by the FFCRA,
  • Wages taken into account for purposes of claiming the pre-existing Work Opportunity Tax Credit, and
  • Wages taken into account for purposes of claiming the pre-existing employer credit for paid family and medical leave.

In addition, the retention credit isn’t available to small employers that receive a potentially forgivable Small Business Administration (SBA) guaranteed Small Business Interruption Loan under the CARES Act’s Paycheck Protection Program.

How Is the Credit Claimed?

Technically, an eligible employer’s allowable retention credit for a calendar quarter is offset against the employer’s liability for the Social Security tax component of federal payroll taxes. That component equals 6.2% of the first $137,700 of an employee’s 2020 wages.

But the credit is “refundable.” That means an employer can collect the full amount of the credit even if it exceeds its federal payroll tax liability.

The allowable credit can be used to offset all of an employer’s federal payroll tax deposit liability, apparently including federal income tax, Social Security tax and Medicare tax withheld from employee paychecks. If an employer’s tax deposit liability isn’t enough to absorb the credit, the employer can apply for an advance payment of the credit from the IRS.

Can You Benefit?

If your business has suffered financially during the COVID-19 pandemic, the CARES Act’s 50% employee retention credit might help you keep workers on the payroll during the crisis. Keep in mind that additional guidance could be released on the credit or more legislation could be signed into law extending or expanding the credit. Our team at Maggart can apprise you of any updates, help you determine whether you’re eligible and explore other tax-saving and financial assistance opportunities that may be available to you during this challenging time.

New Break Temporarily Makes Retirement Plan Withdrawals Less Taxing

Money, Personal Finance, Retirement, Taxes / By

A key provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is intended to help alleviate some of the economic hardship many Americans are experiencing as a result of the novel coronavirus (COVID-19) pandemic. It allows tax-favored treatment for distributions from retirement accounts in certain situations.

The Penalty Waiver & More

Under the CARES Act, IRA owners who are adversely affected by the COVID-19 pandemic are eligible to take tax-favored “coronavirus-related” distributions (CVDs) of up to $100,000 from their IRAs. If you’re under age 59½, the early withdrawal penalty that normally would apply is waived. Any eligible IRA owner can recontribute (repay) a CVD back into their IRA within three years of the withdrawal date and treat the withdrawal and later recontribution as a tax-free rollover. There are no limitations on what you can use CVD funds for during that three-year period.

The CARES Act also may allow you to take tax-favored CVDs from your employer’s qualified retirement plan, such as a 401(k) or profit-sharing plan, if the plan allows it. If allowed, the tax rules for CVDs taken from qualified plans are similar to those for CVDs taken from IRAs. As of this writing, a lot of details still need to be figured out about how CVDs taken from qualified plans will work. Contact the appropriate person with your employer for more information.

The 7 Basic Rules

There are seven basic rules for taking CVDs from IRAs:

  1. You can take one or more CVDs up to the $100,000 limit.
  2. CVDs can come from different IRAs.
  3. The three-year recontribution period for each CVD begins on the day after you receive it.
  4. You can make your recontributions in a lump sum or through multiple recontributions.
  5. You can recontribute to one or several IRAs, and they don’t have to be the same accounts you took the CVDs from.
  6. As long as you recontribute the entire CVD amount within the three-year window, the whole transaction or series of transactions are treated as tax-free IRA rollovers.
  7. If you’re under 59½, the 10% penalty tax that usually applies to early IRA withdrawals is waived for CVDs, even if you don’t recontribute.

If your spouse owns one or more IRAs in his or her own name, he or she may be eligible for the same distribution privilege.

Who’s Eligible?

CVDs can be taken from January 1, 2020, through December 30, 2020, by an eligible individual. That means an individual:

  • Who’s diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention,
  • Whose spouse or dependent (generally a qualifying child or relative who receives more than half of his or her support from you) is diagnosed with COVID-19 by such a test,
  • Who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19,
  • Who’s unable to work because of lack of childcare due to COVID-19 and experiences adverse financial consequences as a result,
  • Who owns or operates a business that has closed or has had operating hours reduced due to COVID-19 and has experienced adverse financial consequences as a result, or
  • Who has experienced adverse financial consequences due to other COVID-19-related factors.

As of this writing, IRS guidance on how to interpret the last two factors is needed. Check in with us for the latest developments.

When Taxes Are Due

You’ll be taxed on any CVD amount that you don’t recontribute within the three-year window. But you won’t have to worry about owing the 10% early withdrawal penalty if you’re under 59½.

You can choose to spread the taxable amount equally over three years, apparently starting with 2020. But here it gets tricky, because the three-year window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal. So, you may have to amend a prior-year return to report some additional taxable income from the CVD. As of this writing, the IRS is expected to issue guidance to clarify this issue. Again, check in with us for the latest information.

You also have the option of simply reporting the taxable income from the CVD on your 2020 individual income tax return Form 1040. Again, you won’t owe the 10% early withdrawal penalty if you’re under 59½.

Getting Through the Crisis

CVDs can be a helpful, flexible tax-favored financial tool for eligible taxpayers during the pandemic. But it’s just one of several financial relief measures available under the CARES Act that include tax relief, and other relief legislation may be forthcoming. Our team at Maggart can help you take advantage of relief measures that will help you get through the COVID-19 crisis.

Seniors: Medicare Premiums Could Lower Your Tax Bill

Insurance, Medical Expenses, Personal Finance, Retirement, Taxes / By

Americans who are 65 and older qualify for basic Medicare insurance, but they may need to pay additional premiums to get the level of coverage they desire. The premiums can be expensive — especially if you’re married and both you and your spouse are paying them. One aspect of paying premiums might be a positive, however: If you’re eligible, they may help lower your tax bill.

Premium Tax Deductions

Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of possibly claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans.

Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

Fewer Itemizers

Qualifying for a medical expense deduction can be difficult for a couple of reasons. For 2019, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 7.5% of AGI.

The Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for 2018 through 2025. For the 2019 tax year, the standard deduction amounts are $12,200 for single filers, $24,400 for married joint-filing couples and $18,350 for heads of households. So, fewer individuals are claiming itemized deductions. However, if you have significant medical expenses (including Medicare health insurance premiums), you may be able to itemize and collect some tax savings.

Important note: Self-employed people and shareholder-employees of S corporations can generally claim an above-the-line deduction for their health insurance premiums, including Medicare premiums. That means they don’t need to itemize to get the tax savings from their premiums.

Other Deductible Medical Expenses

In addition to Medicare premiums, you can deduct a variety of medical expenses, including those for ambulance services, dental treatment, dentures, eyeglasses and contacts, hospital services, lab tests, qualified long-term care services, prescription medicines, and others.

Keep in mind that many items that Medicare doesn’t cover can be written off for tax purposes, if you qualify. You can also deduct transportation expenses to get to medical appointments. If you go by car, you can deduct a flat 20-cents-per-mile rate for 2019.

More Information

Contact Maggart if you have additional questions about Medicare coverage options or claiming medical expense deductions on your personal tax return. Our team can help you identify an optimal overall tax-planning strategy based on your personal circumstances.

Federal Tax Relief to Alleviate COVID-19 Hardships

Business, Employment, Estate Planning, Medical Expenses, Personal Finance, Records, Retirement, Taxes / By

The massive Coronavirus Aid, Relief and Economic Security (CARES) Act includes numerous tax-related provisions. But before the CARES Act was signed into law March 27, the federal government provided other valuable tax relief in response to the novel coronavirus (COVID-19) pandemic. Here is a closer look.

Families First Coronavirus Response Act

On March 18, President Trump signed into law the Families First Coronavirus Response Act. In certain situations, it mandates paid leave benefits for small business employees affected by COVID-19. The paid leave provisions generally apply to employers with fewer than 500 employees, though employers with fewer than 50 employees may be eligible for an exception. Here are the benefits:

Paid Sick Leave

The law requires covered employers to provide 80 hours of paid sick leave for full-time employees in certain situations. (Part-time employees are entitled to this paid sick leave for the average number of hours worked over a two-week period.)

Generally, paid sick leave is required when an employee is subject to a COVID-19-related quarantine or isolation order, has been advised to self-quarantine or is seeking a medical diagnosis for COVID-19 symptoms. It’s also generally required when an employee is caring for someone subject to a COVID-19-related quarantine or isolation order or is caring for a child whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions.

When leave is taken for an employee’s own COVID-19 illness or quarantine, the leave must be paid at the employee’s regular rate, up to $511 per day (up to $5,110 in total). When the leave is related to caring for someone else, the leave must be paid at a minimum of two-thirds of the employee’s usual pay, up to $200 per day (up to $2,000 in total).

Paid Family Leave

The law gives an employee the right to take up to 12 weeks of job-protected family leave if the employee’s child’s school or childcare location is closed due to COVID-19. The first two weeks are unpaid (though they might qualify for sick pay). For the remaining 10 weeks, the employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day, subject to an overall maximum of $10,000 in total family leave payments.

Tax Credit for Employers

To help employers cover this paid leave, the law allows a refundable tax credit equal to 100% of qualified sick leave wages and family and medical leave wages paid by the employer.

The credit applies only to eligible leave payments made during the period beginning on the effective date of April 1, 2020, and ending on December 31, 2020.

Tax credits may also be available to certain self-employed individuals.

Federal tax deadline deferrals

On March 18, the IRS released guidance that outlined the details of a postponed deadline for paying federal income taxes. Notice 2020-17 clarified that individual taxpayers and corporations can defer until July 15 federal income tax payments that would otherwise be due on April 15.

Notice 2020-18 subsequently provided additional clarifications, including a postponement of the federal income tax filing deadline to July 15 as well.

Some specifics under these relief measures are as follows:

For Individuals:

Individual taxpayers can defer federal income tax payments (including any self-employment tax) owed for the 2019 tax year from the normal April 15 deadline until July 15. They can also defer initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

For Corporations:

Corporations that use the calendar year for tax purposes can defer until July 15 federal income tax payments that would otherwise be due on April 15. This relief covers the amount owed for the 2019 tax year and the amount due for the first quarterly estimated tax payment for the 2020 tax year. Both of those amounts would otherwise be due on April 15.

For Trusts & Estates:

Trusts and estates pay federal income taxes, too. Normally, federal income tax payments for the 2019 tax year of trusts and estates that use the calendar year for tax purposes would be due on April 15. The initial quarterly estimated federal income tax payments for the 2020 tax year of trusts and estates that use the calendar year for tax purposes would also normally be due on April 15. These deadlines have also been postponed to July 15.

Notice 2020-20 postponed the filing and payment deadlines for 2019 federal gift and generation-skipping transfer taxes from April 15 to July 15.

Moving Target

We’ve covered only some of the COVID-19-related tax law changes that have already been finalized. There are also other types of federal relief under the CARES Act and through federal agencies. And many states have announced their own COVID-19 relief. More federal measures and additional guidance are expected, some of which could affect the relief discussed here. Contact Maggart to discuss which relief measures may apply in your specific situation.