Tax Deadline Extended / Tips on Submitting Tax Information

This has certainly been a challenging tax season for many reasons.  The Crosslin tax team is currently working remotely to make sure that all of our client deadline needs are met.  

As reported today, the IRS has extended the federal tax filing deadline from April 15 to July 15.  However, both the federal government and your advisors here at Crosslin encourage you to stick with the April 15 deadline if possible, especially if you anticipate receiving a refund.

It is important we receive your tax information sooner than later, so we have put together a few thoughts and tips to help.  The “queue line” of returns is building, so please submit your return data as soon as you can so our team can advise you on whether an extension until July 15 benefits you.  *Use your Crosslin Tax Portal to submit your data.  It can be found at www.clientaxcess.com

*Your username is your email address.  If you don’t have your password, choose “forgot password” to reset it.

*You can scan items into the portal as one document or many, whichever works best for you.

*Do not wait for “one last item” to submit your data.   We can get started, then enter that item when it arrives.

*Sign your engagement letter up front to avoid delays in delivering your return.  If you do not have a copy of your letter that was sent in early January, let us know and we would be happy to send another to you.   

*Allow us to use our affiliated firm in India to assist us in preparation by signing the consent on the last page of your engagement letter (both spouses must sign for joint returns).  The cost is lower and the delivery speed faster utilizing the offset time zones.   Almost none of the returns for which we are permitted to use that part of our team will be extended.  

If you bring data by the office, we still have a small operations team onsite to accept your information.   

Our tax team is working remotely to follow suggested guidelines due to the coronavirus emergency.  However, we are still easy to reach by phone at 615-320-5500 or you can email your tax team member.  If you are unsure of the e-mail, you can use info@crosslinpc.com.

Please avoid using staples or highlighters on your tax data.   Staples slow down our scanning process and highlighted data sometimes does not show up on scans.

If you have a third party that needs to send something to Crosslin securely, please send them to www.crosslinpc.com.  They will need to choose the “customer portal” button in the upper right corner to find options for secure transmission of data.

As always, thank you for your business.  We want everyone to stay safe and healthy during these turbulent times.  Call us at 615-320-5500 with any additional questions or needs.

Summary of Tax Deadline Changes

With the influx of news and uncertainty over the last few weeks due to both the Middle Tennessee tornado and coronavirus, we wanted to summarize the changes that the IRS has authorized regarding upcoming tax deadlines.  However, please note that the extensions might not be beneficial to all.  It is important to consult with your Crosslin tax team member to determine what is best for your situation. 

Time Extensions for Tornado Victims

For residents of Davidson, Wilson, and Putnam counties, the IRS has granted filing relief to victims of the recent tornadoes by extending the filing and payment dates for many returns and taxes until July 15, 2020.   The relief is automatic for those residing in these three counties; however, it is important to note that it may be better for individuals to stick with the April 15 deadline, especially if a refund is due. 

Even with the changes, Crosslin is encouraging our clients affected by the tornado to continue with the mindset that the tax filing deadlines have not changed, and to let us advise you as we deliver returns to you regarding your options and relevant dates.  We are also reviewing the returns previously delivered for the purpose of informing clients who have already filed of the new options.

Due to Coronavirus, Tax Filing Deadline Remains but Tax Payments Deadline Deferred

The IRS tax filing deadline remains April 15, 2020 for returns with original due dates on that date

However, regarding tax payments, the U.S. Treasury Department and IRS issued guidance allowing all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments due until July 15, 2020, without penalties or interest. 

The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments until July 15, 2020, without penalties or interest. 

Contact a member of the Crosslin tax team with any questions you may have.  We realize it is extremely confusing as this situation continues to unfold. As always, thank you for your business.  Please give us a call at (615) 320-5500 with any questions. 

The Families First Coronavirus Response Act – What It Means for Employers

The Families First Coronavirus Response Act (H.R. 6201),  became law on March 18, 2020. The Act guarantees free testing for the novel coronavirus (COVID-19), establishes emergency paid sick leave, expands family and medical leave, enhances unemployment insurance, expands food security initiatives, and increases federal Medicaid funding.

The Act includes up to 80 hours of emergency paid sick leave for workers who are unable to work while they are sick or complying with COVID-19 restrictions or caring for school age children due to the closure of schools or child care facilities, as well as paid family and medical leave that employees will be able to use to care for family members (not for personal illness) for up to 12 weeks. The first 10 days of emergency family and medical leave may be unpaid, unless employees opt to use accrued paid time off for those days.

The mandatory paid leave provisions apply to employers with fewer than 500 employees and government employers, with exceptions for health care workers and first responders. Self-employed individuals would be eligible for the new benefits provided under the Act. It is not clear if individuals who have self-employment income from their partnership or limited liability company would be eligible for the new self-employed benefits, as the Act does not specifically address those situations. Employers with 500 or more employees would not be subject to those rules.  Employers who are required to provide paid time off would need to initially bear the costs of paying their employees, but the federal government would provide payroll tax credits to help cover those costs.

Background. Currently, the federal Family Medical Leave Act of 1993 (FMLA) provides eligible employees up to 12 work weeks of unpaid leave a year and requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are also entitled to return to their same or an equivalent job at the end of their FMLA leave. Special rules apply to military personnel.

To be eligible for FMLA, an employee is required to have been employed by their employer for a year, worked for 1,250 hours, and worked in a location where there are 50 other employees within a 75-mile radius. The FMLA applies to all private sector employers who employ 50 or more employees for at least 20 workweeks in the current or preceding calendar year (including joint employers and successors of covered employers). Many states have enacted laws that are similar to federal FMLA, which apply to smaller employers who may be exempt from federal FMLA. The FMLA also applies to federal, state and local employers. These current provisions remain available for qualifying employees.


Employer Mandates

Emergency Paid Sick Leave. Through December 31, 2020, the Act requires employers with fewer than 500 employees and government employers to provide all employees (including union employees and regardless of how long the individual worked for the employer, but excluding health care workers and first responders) with 80 hours (e.g, 10 business days) of emergency paid sick leave for full-time workers (pro-rated for part-time employees or employees with varying work schedules) for employees who are unable to work or telework because the employee:

  • Is subject to a federal, state, or local COVID-19 quarantine or isolation order;
  • Has been advised by a health care provider to self-quarantine because of COVID-19;
  • Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  • Is caring for an individual subject to or advised to quarantine or isolation;
  • Is caring for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions; or
  • Is experiencing substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Generally, employers would pay employees at their regular rate of pay for emergency sick leave, capped at $511 per day ($5,110 in the aggregate) if the leave is taken for an employee’s own illness or quarantine (i.e., for the first three bullets above). Employers would pay employees two-thirds of their regular rate of pay for emergency sick leave, capped at $200 per day ($2,000 in the aggregate) if the leave is taken to care for others or due to school closures (i.e., for the last three bullets above).

An employer cannot require an employee to use other paid leave before using this paid leave. Employers would not be able to require employees to find replacement workers to cover their shifts if employees use emergency paid sick leave. The federal government is supposed to provide a model notice within seven days after enactment, which employers would be required to post at their workplace, informing employees of their right to emergency paid sick leave. The U.S. Department of Labor is directed, within 15 days after enactment, to issue guidelines on how to calculate the amount of emergency paid sick leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from having to provide emergency paid sick leave to employees who need to care for a son or daughter whose school or place of care is closed, or child care provider is unavailable, due to COVID-19 precautions if the imposition of such requirements would jeopardize the viability of the business as a going concern.

Employers would face penalties for failing to comply with the new emergency paid sick leave rules and are prohibited from discriminating against employees who take emergency paid sick leave. Eligible employees could use emergency paid sick leave before using new, emergency paid family and medical leave created by the Act.

FMLA Amendments. The Act would add provisions to the FMLA to provide employees (including union employees) who have been employed for at least 30 days by employers with fewer than 500 employees or government employers, with the right take up to 12 weeks of job-protected leave through December 31, 2020, if the employee is unable to work or telework due to having to care for a child under age 18 if the child’s school or place of child care has been closed (or the child care provider is unavailable), due to the COVID-19 public health emergency.  Employers may elect to exclude health care workers and first responders from taking this public health emergency FMLA.

The first 10 days of FMLA under these new provisions may be unpaid. Employees can use other paid time off such as vacation, sick days, sabbatical, or emergency paid sick leave to cover that gap, but employers cannot require employees to use their accrued paid time off before using these 12 weeks of extended FMLA leave. Employers would pay employees two-thirds of their regular rate of pay for this emergency FMLA leave, capped at $200 per day ($10,000 in the aggregate per employee). Adjustments would be made to the amount of paid time off for employees with varying schedules.

The Act gives the U.S. Department of Labor authority to issue regulations that would exclude certain health care providers and emergency responders from being able to take emergency family and medical leave. The Department of Labor also has the authority to issue regulations to exempt small businesses with fewer than 50 employees from the emergency family and medical leave requirements if the imposition of such requirements would jeopardize the viability of the business as a going concern. The Act would also exempt employers with fewer than 50 employees in a 75-mile radius from civil damages in an FMLA lawsuit.

Under the Act, covered employers (those with less than 500 employees) are required to hold an employee’s job open for them until the end of the leave period. However, an exception applies to employers with fewer than 25 employees if the employee’s position no longer exists due to economic conditions or other changes in the employer’s operations that affect employment and are caused by the COVID-19 crisis, and the employer made reasonable efforts to restore the employee’s job. And, if those efforts failed, the employer agrees to reinstate the employee if an equivalent position becomes available within a year.

The Act creates new, refundable payroll tax credits for employers to help cover the costs of this new paid sick and family leave.
 

Payroll Tax Credits

To assist employers who are required to provide emergency paid sick leave or FMLA leave under the programs described above, the Act provides for a refundable tax credit applicable against the employer’s portion of Social Security or Railroad Retirement Tax Act (RRTA) tax for amounts paid under those programs. The credit is equal to 100% of the compensation paid in each calendar quarter to employees who are not working for the reasons enumerated above, subject to the following limitations:

For payments to an employee who needs time off for self-isolation, diagnosis, or care of a COVID-19 diagnosis, or compliance with a health care provider’s recommendation or order, the credit is capped at $511 of eligible wages per employee per day. For payments to an employee who needs time off to care for a family member who has been exposed to or diagnosed with the COVID-19, or a child under age 18 whose school or place of care has been closed, the credit is capped at $200 of eligible wages per employee per day. The credit for emergency paid sick leave wages is only available for a maximum of 10 days per employee over the duration of the program. For expanded FMLA, the credit is capped at $200 of eligible wages per employee per day and $10,000 for all calendar quarters.

Both of the credits are increased by any amounts paid or incurred by the employer to maintain a group health plan, to the extent those expenses are (1) excluded from the employee’s gross income under the tax code and (2) “properly allocable” to the respective qualified sick or FMLA wages required to be paid under the Act. The exact method of allocation will be provided by regulation at a later date, but the Act provides that the allocation will be treated as properly made if done “on the basis of being pro rata among covered employees and pro rata on the basis of periods of coverage.”

If the credit exceeds the employer’s total liability for Social Security or RRTA tax for all employees for any calendar quarter, the excess is refundable to the employer. The employer may choose not to apply the credit. Further, to prevent a double benefit, the employer cannot obtain a deduction for the amount of the credit. In addition, employers may not receive the credit in connection with wages for which a credit is allowed under Section 45S (credit for paid family and medical leave).         

Similar rules apply to a self-employed individual that allow a refundable tax credit against the individual’s self-employment tax. The credit is capped at the lesser of the amounts that apply to eligible wages per employee or the individual’s lost self-employment income. The House-passed version of the Act provides guidance on how to determine the individual’s lost income due to the corona virus.

Notably, required payments for emergency paid sick leave or FMLA under the Act will not be considered wages for purposes of calculating the employer’s portion of the Social Security or RRTA tax. In addition, the tax credits available to an employer are increased by the amount of the employer’s liability for Medicare tax on wages paid under the Act, effectively exempting the emergency sick leave and FMLA payments from that tax as well. In this way, the Act provides employers with two tax benefits: (1) refundable credits against the employer’s portion of Social Security or RRTA tax; and (2) an exemption from, or credit against, the employer’s portion of Social Security or RRTA and Medicare taxes on the wages required to be paid under the Act.

However, the law does not exempt these payments from the definition of wages for the purpose of other taxes (including the employee’s portion of Social Security, RRTA and Medicare taxes).

The Act ensures there is no negative impact to the Social Security program caused by the tax credit or the exemption of sick pay and family leave pay from Social Security tax by authorizing a transfer of funds from the General Fund to the Social Security and disability insurance trust funds to replace the lost employer contributions. The tax provisions discussed herein will apply beginning on a date to be determined by the Secretary of the Treasury after the enactment of the Act and ending on December 31, 2020.

Benefits of Lowering Adjusted Gross Income

Taking steps to reduce your income can reduce your overall tax burden. Individual taxpayers may be able to reduce their taxable income through deductions if they meet the qualifications and income limitations. Saving for retirement and for future medical costs is an important way for an individual may achieve financial security and prepare to save for future expenses. This article focuses on the background and tax benefits on reducing adjusted gross income by contributing to retirement plans, contributing to a health savings account, and opportunities for a student loan interest deduction.

Traditional IRA. Any individual, regardless of whether covered under other qualified retirement plans, can establish an individual retirement account (IRA). Whether an individual is employed or self-employed, they may also take advantage of a variety of employer-sponsored retirement plans. These options not only provide security for the future, but also may provide opportunities for current tax savings. Traditional IRAs allow an individual with earned income to make tax-deductible contributions to a savings plan under which the gains and earnings are not taxed until they are distributed.

Contributions to a traditional IRA are generally deductible on the taxpayer’s individual income tax return, to the extent that they do not exceed the lesser of the individual’s compensation for the year or the maximum contribution limit for the year and subject to income limits. In addition, nondeductible contributions from after-tax income may be made to traditional IRAs.  For 2020, total contributions to all of a taxpayer’s traditional and Roth IRAs cannot be more than, the lesser of: $6,500 ($7,500 if they are age 50 or older) or their taxable compensation for the year. The prior maximum age limitation of 70 ½ to contribute to an IRA ended effective for contributions after December 31, 2019.

SEP Plan. A SEP is a type of IRA for small business owners or self-employed individuals. A SEP IRA allows the employer to make contributions to the accounts set up for employees. Self-employed individuals choosing a SEP must include all employees who satisfy the following requirements: at least 21 years of age; were employed during any three of the preceding five years; and earned at least $600 in the current year.

Contributions to a SEP plan are tax-deductible and earnings are not taxable until withdrawal. One advantage of the SEP IRA is the higher contribution limit. For 2020, employers can contribute the lesser of: up to 25% of income (limited to $285,000) or $57,000.

SIMPLE Plan. Any employer that had no more than 100 employees with $5,000 or more in compensation during the preceding calendar year can establish a SIMPLE IRA plan. Self-employed individuals who received earned income from the taxpayer and leased employees are considered for purposes of the 100-employee limitation.

Employers must also make contributions whether an employee elects to defer a portion of their income to the plan. Contributions are tax deductible and investments grow tax deferred until the owner is ready to make withdrawals in retirement. For 2020 an employee may defer up to $13,500. If the individual age 50 or over, there is a $3,000 catch up contribution allowed, for a total of $16,500.

Health Savings Account (HSA). Health savings accounts (HSAs) are available for individuals who have a high deductible health plan and may be funded by the individual or the individual’s employer. The benefits of an HSA include:

  • taxpayers can claim a tax deduction for contributions you or someone other than your employer make to your HSA,
  • contributions to your HSA made by your employer may be excludable from income, and
  • the contributions remain in your account until you use them.

For 2020, the maximum contribution to an HSA is the lesser of: the annual deductible under the individual’s high deductible health plan; or $3,550 for an individual with self-only coverage and $7,100 for an individual with family coverage.

Student loan interest deduction. Interest paid by an individual taxpayer during the tax year on any qualified education loan is deductible from gross income in calculating adjusted gross income. The student loan must be incurred by the taxpayer solely to pay qualified higher education expenses. The maximum deductible amount of interest is $2,500, but the deduction is phased out or reduced based on the taxpayer’s modified adjusted gross income.

Crosslin’s tax team can evaluate how the tax advantages of retirement plans, health savings account, or education benefits could apply to your individual income tax situation.  Call us at 615.320.5500.