[Update] Tax Deadlines Pushed Back: Federal and California Measures to Help Taxpayers through COVID-19 Pandemic

[Update as of September 12, 2020: The CDPH Guidance for the Prevention of COVID-19 Transmission for Gatherings is no longer in effect and is for historical purposes only.]

The impact of coronavirus has been increasing rapidly. While Congress is still working on a proposal to stimulate the economy, both the federal government and the State of California have announced ways to help people get through this difficult time.

Federal

President Trump announced on March 11, 2020 that he would direct the Treasury to “defer tax payments without interest or penalties for certain individuals and businesses who are negatively impacted. On March 17, 2020, Treasury Secretary Steven Mnuchin has announced that certain taxpayers can delay paying their income tax for up to 90-days without incurring late payment penalties and interest for individuals with tax payments up to $1M and corporation with tax payments up to $10M. This income threshold is later removed on March 20 when IRS issued Notice 2020-18 saying payment extension applies to ALL taxpayers regardless of tax due amounts.

IRS has issued Notice 2020-17 saying that the extension of payment due date applies to both 2019 tax due on April 15, 2020 and 2020 first-quarter estimates which is also due on April 15, 2020. IRS has further issued a statement on March 20, granting an extension for filing tax returns to July 15, 2020. IRS also clarified that the filing and payment extensions apply to individuals, trusts, estates, partnerships, corporations, associations, and companies. Taxpayers who are expecting refunds are encouraged to file their income tax returns early.

» Read the IRS Notice 2020-18

Payroll Tax Credit

The Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020, mandated employers with more than 50 employees to provide paid sick leave and expanded family and medical leave for COVID-19 related reasons. The Act also created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave that they provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances. Health insurance costs are also included in the credit.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS for payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

» Read the IR-2020-57

California

California Governor Gavin Newsom issued a new executive order on March 12, 2020 in response to the COVID-19 pandemic. The executive order granted a 60-day extension for individuals or businesses who are unable to timely file their tax returns or make timely payments as a result of:

1. Complying with a state or local public health official’s imposition or
2. Recommendation of social distancing measures related to COVID-19.

Governor Newsom and state public health officials announced that gatherings should be postponed or canceled across the state until at least the end of March. California Department of Public Health has issued social distancing guidelines that recommend small gatherings should not be held unless the organizers can implement social distancing of 6 feet per person. Groups of individuals who are at higher risk for severe illness from COVID-19 should be limited to no more than ten people.

References:
The full executive order can be found here and the social gathering guidelines can be found here.

What does that mean to you?

Income Taxes

Consistent with the Governor’s executive order, the Franchise Tax Board (FTB) has granted relief to taxpayers who are affected by COVID-19 to file California tax returns and make certain payments until July 15, 2020. To clarify in more detail:

1. Any business entity with California return or payment due between March 15 and June 15 gets an extension to file and pay by July 15. This includes Corporations, S-Corps, LLCs, Partnerships and other entity types with returns due during this period.
2. Individual filers whose tax returns are due on April 15 now have an extension to file and pay by July 15.
3. First and second quarter individual estimated tax payments are now due by July 15.
4. Any non-wage withholding payments due prior to July 15 are now due by July 15.

The FTB will also waive interest and any late filing or late payment penalties that would otherwise apply. Taxpayers claiming the special COVID-19 relief should write the name of emergency (for example, COVID-19) in black ink at the top of the tax return to alert FTB of the special extension period.

» Read the FTB News Release

Payroll Taxes

California employers directly affected by the emergency or disaster may request an extension of up to 60-days to file their state payroll reports and to deposit state payroll taxes with the Employment Development Department (EDD).

If you need to file and/or deposit payroll taxes late, you can file and pay payroll taxes with EDD within 60-days from the original due date and request penalty and interest relief. With the delinquent filing, you will need to attach a letter specifically requesting an extension of time under Section 1111.5 of the CUIC and provide details as to why the payroll returns and/or payments could not be submitted in a timely manner.

For more information, you can contact the EDD Taxpayer Assistance Center at (888) 745-3886.

Sales Taxes

California Department of Tax and Fee Administration has existing procedure for taxpayers to request relief penalty and interest for late return filing and/or late tax payments. The Governor’s executive order makes it easier for taxpayers request such relief during this 60-day window. Taxpayers can file a request online, send a letter, or call the CDTFA at 1-800-400-7115.

For more information, please go to CDTFA Relief Request FAQs.

Unemployment Insurance Claims

For those who have been laid-off or furloughed, the one week waiting period has been waived for now, so employees can begin receiving payments for the first week. For more information, go to CA EDD – COVID 19.

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About the Author

So Sum Lee, CPA, Principal
Tax, Real Estate, Technology, Hospitality
So Sum Lee, CPA is a Tax Principal at KROST. So Sum has over 18 years of experience in public accounting and has a wide range of experience in Taxation, as well as servicing high-net-worth clients. So Sum’s area of expertise includes industries such as wholesale, Real Estate investments, and Restaurants. » Full Bio