Federal Tax Posts

In new guidance, the IRS has provided more coronavirus (COVID-19) deadline relief for employment taxes, employee benefit plan and other requirements. Notice 2020-35 postpones deadlines for certain specified time-sensitive actions with respect to certain employment taxes, employee benefit plans, exempt organizations, and Coverdell education savings accounts because of the ongoing COVID-19 pandemic. The notice also provides a temporary waiver of the requirement for a Certified Professional Employer Organization to file certain employment tax returns and accompanying schedules electronically. Read the guidance here: https://bit.ly/2TQcuNE 


The IRS and the Social Security Administration (SSA) must work together to fight employment-related identity-fraud, a report by the Government Accountability Office (GAO) warned. The report showed a key source of fraud involves individuals who use another person’s Social Security number. People may do this if they aren’t authorized to work in the United States, are trying to avoid child support payments and other reasons, the GAO said. Scrutiny of one employment form, the W-2 (Wage and Tax Statement) revealed 818,000 such cases in 2018. The true scope of this crime isn’t yet known, said the GAO, which called on the two agencies to increase collaboration. Here’s more: https://bit.ly/3fNwFEZ 


The Paycheck Protection Program (PPP) is one way the Small Business Administration (SBA) is helping small employers keep payroll flowing during the novel coronavirus (COVID-19) crisis. The PPP lends businesses the funds to cover payroll, some employee benefit costs, and certain other expenses. Another SBA option is to apply for “employee retention credits,” but only for businesses that don’t also have an outstanding PPP loan. A safe harbor existed, that allowed a PPP borrower to repay the loan by May 14 and be deemed eligible for tax credits. The SBA has now extended the repayment date to May 18, allowing more employers to qualify for these credits. Here’s more: https://bit.ly/2z0Vr47 


Did you receive an Economic Impact Payment (EIP) for less than you expected? EIPs are part of the tax relief intended to help mitigate the effects of the novel coronavirus (COVID-19) crisis. Generally, the EIP amounts are predictable (up to $1,200 if you’re under a certain income threshold). But amounts may be less for reasons including: misunderstandings about the eligibility of dependents for $500 per eligible child payments; past-due child support; and garnishments by creditors because EIPs aren’t protected from garnishment once they’ve been deposited into a taxpayer’s bank account. For more details: https://bit.ly/3fDWJCz 


The IRS has increased the health Flexible Spending Account (FSA) carryover amount. In Notice 2020-33, the IRS stated that the FSA carryover limit (currently fixed at $500) will now be indexed for inflation. For a plan year starting in 2020, the maximum unused amount that can be carried over to the next plan year starting in 2021 is $550. The tax code allows employers to offer FSAs to employees to help them pay for health care and dependent care costs not covered under an employer’s regular plan. Employers can amend their health FSA plan documents to provide for the carryover to the next plan year of the $500/$550 amounts remaining unused as of the end of the plan year.


Proposed regulations clarify estate and non-grantor trust deductions. The IRS has issued proposed reliance regs clarifying that certain deductions allowed to an estate or non-grantor trust wouldn’t be miscellaneous itemized deductions. Thus, these deductions would not be affected by the suspension of the deductibility of miscellaneous itemized deductions for tax years beginning before 2026. The proposed regs also provide guidance on determining the character, amount and allocation of deductions in excess of gross income succeeded to by a beneficiary on the termination of an estate or non-grantor trust.


Taxpayers have many questions regarding Economic Impact Payments (EIPs) and the IRS is answering some of them in FAQs on its website. Specifically, individuals are wondering whether an EIP is considered taxable income. The IRS said it’s not, and taxpayers won’t owe tax on it. In addition, the payment won’t reduce taxpayers’ refunds or increase the amount they owe when they file their 2020 tax returns next year. An EIP also won’t affect income for purposes of determining eligibility for federal government assistance or benefit programs. For more information: https://bit.ly/2T2BwbN 


To address unanticipated health care expenses due to the COVID-19 pandemic, the IRS has issued guidance to increase flexibility in employees’ cafeteria plans. The IRS has added to the situations in which a cafeteria plan may allow employees to make mid-year elections, allowed more flexibility with respect to health flexible spending accounts (FSAs) and dependent care assistance programs under a cafeteria plan, and provided several rules with respect to high deductible health plans (HDHPs). Specifically, regarding health FSAs, the IRS increased for inflation the $500 permitted carryover amount to $550. For more information about Notice 2020-29: https://bit.ly/2zyon3q 


More than 130 million individuals have already received Economic Impact Payments (EIPs) worth more than $200 billion, according to the IRS. “Millions more are on the way every week,” said IRS Commissioner Chuck Rettig, to help offset economic damage caused by the novel coronavirus (COVID-19) crisis. The U.S. Treasury Dept. and the IRS have just released a state-by-state breakdown showing how payments made in the first four weeks of the program have been distributed. The top three states both by numbers of EIPs, and by total dollars delivered, are: California, Texas and Florida. Find your state here: https://bit.ly/2xRXcjs 


The U.S. House has passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. The bill would provide more than $1 trillion of aid to state, local, territorial and tribal governments to pay first responders and health care workers. It would also provide an additional recovery rebate, similar to the CARES Act economic impact payment. The recovery rebate would be $1,200 per eligible taxpayer plus $1,200 for each dependent (to a maximum of three dependents). The bill would also eliminate the $10,000 cap on state and local tax (SALT) deductions. Senate leaders say there’s little chance the bill will pass there, and the President says if it does, he will veto it.


The federal government logged an estimated budget deficit of $1.48 trillion for the first seven months of fiscal year 2020, which a Congressional Budget Office (CBO) report said “appears to be unprecedented.” The deficit was $949 billion more than the same period last year, as receipts fell $200 billion and outlays rose $749 billion. “That substantial difference stems from the economic disruption caused by the novel coronavirus pandemic and from the federal government’s response to it,” including Administration actions and passage of the Coronavirus Aid, Relief and Economic Security Act and the Families First Coronavirus Response Act, the CBO stated. Read the report: https://bit.ly/3dzPt8Y 


May 13 is the deadline to provide the IRS with information to get an Economic Impact Payment (EIP) via direct deposit. The IRS has stated that taxpayers who qualify for, but haven’t received their EIP, should provide the direct deposit bank information on the IRS’s “Get My Payment” website by noon on May 13. The tax agency said this step will help avoid the delay involved in receiving a paper check; deliveries will extend into September. The federal government is making payments of up to $1,200 to individuals under a certain income threshold. Married couples filing jointly, who fall under an income threshold, can receive up to $2,400. There are additional $500 payments per qualifying child.


Some people have reported receiving Economic Impact Payments from the federal government that were sent in error. These are the payments the IRS is sending to Americans who meet certain requirements to help mitigate the effects of the novel coronavirus (COVID-19) pandemic. What should you do if you receive a payment and you’re not entitled to it or the amount is more than you’re entitled to? The IRS is providing instructions on how to return an erroneous uncashed paper check, a cashed check or a direct deposit. Here are the instructions: https://bit.ly/2xIL2cP 


The IRS has announced that recipients of Veterans Affairs (VA) benefits will automatically receive Economic Impact Payments (EIPs). It noted that the timing of the payments is still being determined. If individuals who receive VA benefits have dependent children and haven’t filed federal taxes in 2018 or 2019, they must register with the IRS “Non-filers” website. Enter payment information, such as a bank account, to qualify for the $500 per dependent child payment. Visit the website here: http://bit.ly/3bnz7PX  . Persons who don’t provide their information to the IRS soon will receive their $500 per qualifying child at a later date. For additional information: http://bit.ly/2KmeWGu 


The Social Security Administration has provided guidance for Social Security recipients using the IRS “Non-filers” website to report information needed to receive Economic Impact Payments (EIPs). Specifically, those with Direct Express debit cards who enter information at the IRS’s website must complete all of the mandatory questions, but they may leave the bank account information blank as the U.S. Treasury already has their Direct Express information on file. In addition, new Social Security recipients as of Jan. 1, 2020, who didn’t file a tax return for 2018 or 2019, will also need to use the IRS “Non-filers” website as they won’t automatically receive EIPs.