Locke Lord QuickStudy: Federal and State Governments Begin to Provide Economic Assistance via Tax Relief in the Face of COVID-19 Economy Disruptions

Updated on March 20, 2020, 9:00 PM CDT

U.S. Treasury and States Tax Authorities Extend Due Dates

On March 20, 2020, the U.S. Treasury expanded taxpayer relief by extending the filing date by 90 days for Federal income tax returns due on April 15, 2020 and removing the limit on the amount of associated tax payments that can be deferred to such date. Initially, the U.S. Treasury had extended only certain tax payments (subject to limits) due on April 15, 2020 by this 90-day period.

The extended payment date effectively provides an eligible taxpayer with a 90-day interest-free loan in an equivalent amount, and the extended filing date provides tax return preparers and taxpayers with additional time to prepare returns in the face of social-distancing practices and shelter-in-place orders sweeping the United States.

More specifically, under Notice 2020-18 (March 20, 2020), the April 15, 2020 due date for Federal income tax returns and making Federal income tax payments (including payments of self-employment income taxes) is automatically postposed to July 15, 2020. No extension is provided to any other payment or deposit of any other type of Federal tax or the filing of any Federal information return. Taxpayers do not need to file IRS Forms 4868 or 7704 to take advantage of these extensions, and there is no longer any limit on the amount of tax payment that may be postponed. Under the initial relief pursuant to Notice 2020-17 (March 18, 2020), taxpayers could defer only $10,000,000, for a consolidated group of corporations and each “C” corporation filing on a non-consolidated group basis, or $1,000,000 in the case of all other taxpayer. Notice 2020-18 supersedes Notice 2020-17.

State taxing authorities are also providing extended due dates as relief for taxpayers. Below is a list of actions taken to date by certain state tax authorities.

California:  The State of California Franchise Tax Board has extended various filings date and certain payment dates 

Connecticut:  The Connecticut Department of Revenue has extended the filing dates of certain tax returns and the payment dates for associated tax payments (https://portal.ct.gov/DRS/News---Press-Releases/2020/2020-Press-Releases/Effective-Immediately-DRS-Extends-Filing-Deadline-for-Certain-Annual-State-Business-Tax-Returns)

Illinois:  The Illinois Attorney General is providing a 30-day extension for filing and payments of estate taxes and related returns

Maryland: The Comptroller of Maryland has extended various personal and business tax filings and payment dates.  More information can be found by following this link:  (https://www.marylandtaxes.gov/media/index.php)

Michigan:  State of Michigan Department of Treasury has provided a 30-day extension for monthly sales, use and withholding tax returns due on March 20, 2020. (https://www.michigan.gov/documents/treasury/SUW_Penalty_and_Interest_Waiver_Notice_684145_7.pdf)

The Newly Enacted Families First Coronavirus Response Act Provides Payroll Tax Credits for Employers and Self-Employed Individuals

Also on March 18, 2020, the Senate approved H.R. 6201, the Families First Coronavirus Response Act (“FFCRA”), which was signed into law hours later by President Trump.  FFCRA is a $1.3 trillion stimulus package that does a number of things, including providing free COVID-19 testing for individuals through payment waivers or requirements that private insurance cover such costs, increasing certain unemployment benefits and requiring paid sick and family leave in certain COVID-19 related instances.¹

The FFCRA also provides refundable tax credits to employers and self-employed individuals relating to certain sick or family leave wage payments or equivalents thereof. Employers that pay “qualified sick leave” wages (generally, wages required to be paid pursuant to FFCRA’s Emergency Paid Sick Leave Act²) or “qualified family leave wages” (generally, wages required to be paid pursuant to the Emergency Family and Medical Leave Expansion Act³) can take credits equal to the applicable wages (subject to certain limitations and adjustments) against the employer portion of certain payroll taxes (principally, the 6.2% Old-Age, Survivors and Disability Insurance employer tax) for a quarter. 

The credit for qualified sick leave is for wages paid to an employee up to $511 per day for sick pay due to the employee’s COVID-19 illness or quarantine, or $200 if the employee is caring for a family member quarantined due to, or stricken with, COVID-19 or child staying home as a result of COVID-19 school closings.  The credit is also limited to 10 days for each such employee per quarter.  The credit for the qualified family leave wages is up to $200 per employee per day, with a $10,000 aggregate limit for all calendar quarters for an employee.  The available credits may be subject to adjustment for certain qualified health care plan expenses properly allocable to the relevant wages. 

If the available credit(s) exceed the relevant payroll taxes for the quarter, these excess credits generally are refundable.  Employers taking advantage of the credits are required to increase their gross income by the amount of the credits to avoid a potential double tax benefit.  In addition, wages included for purposes of determining these payroll tax credits cannot be used for purposes of determining the credit under Internal Revenue Code Section 45S relating to paid family and medical leave applicable in other circumstances.  Employers have the right to elect out of the credit. 

Similar credits are provided to eligible self-employed individuals for qualified sick leave and qualified family leave equivalent amounts.

The available credits apply to wages paid for the period beginning on a date selected by the Secretary of Treasury which is during the 15-day period beginning on the date of FFCRA’s enactment and ending on December 31, 2020.

Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.

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1. UPDATE On The Families First Coronavirus Response Act (FFCRA) (H.R. 6201/H.R. 904) Paid and Unpaid Leave
2. UPDATE On The Families First Coronavirus Response Act (FFCRA) (H.R. 6201/H.R. 904) Paid and Unpaid Leave
3. UPDATE On The Families First Coronavirus Response Act (FFCRA) (H.R. 6201/H.R. 904) Paid and Unpaid Leave