By: Peter Beach & Mark Dell’Orfano
March 30, 2020
Legal responses to the COVID-19 pandemic are evolving daily. Both federal and state tax law developments reflect efforts to respond to the growing economic impact that the pandemic is having on individuals and businesses. This Client Alert provides an overview of the tax-related responses of the Northern New England states and the federal government so far.
The New Hampshire Department of Revenue Administration has announced its COVID-19 tax filing and payment relief program for business profits tax, business enterprise tax and interest and dividends tax purposes. The program divides taxpayers into two classes: qualifying taxpayers and all taxpayers. “Qualifying taxpayers” are (i) business tax taxpayers whose total tax liability for tax year 2018 was $50,000 or less and (ii) interest & dividends tax taxpayers whose total tax liability for tax year 2018 was $10,000 or less. “All taxpayers” are taxpayers who do not satisfy the qualifying taxpayer requirements and taxpayers who satisfy the qualifying taxpayer requirements but choose not to take advantage that program.
All New Hampshire Taxpayers
For all New Hampshire taxpayers (including qualifying taxpayers who decide not to take advantage of the June 15, 2020 filing and payment date), April 15, 2020, remains the deadline for taxpayers to file or pay (i) the business tax or interest & dividends tax for tax year 2019 and (ii) the first-quarter estimated tax for 2020 with respect to those taxes.
With respect to 2019 taxes, based on existing law, taxpayers who have paid their tax in full by the return due date are entitled to an automatic 7-month extension of the time to file; any underpayment of tax as of the April 15, 2020, deadline would result in penalties and interest. However, as a result of the COVID-19 pandemic, the DRA will not assess any applicable interest or penalties against taxpayers who file their 2019 returns and pay any remaining balance due within the automatic 7-month extension, if by April 15, 2020, they have paid an amount equal to at least either their total tax liability for tax year 2018 or 2019.
With respect to 2020 estimated tax payments, calendar year taxpayers impacted by the COVID-19 pandemic who make their tax year 2020 estimated tax payments in at least the amount of their total tax liability for tax year 2018 or 2019, will not incur any underpayment of estimated tax penalties if their 2020 liability ultimately exceeds the estimated payments made. Taxpayers electing to utilize their total tax liability for tax year 2018 for purposes of calculating their 2020 estimated tax liability must make a payment equal to at least 25% of the total tax liability for tax year 2018 by each of the four quarterly estimate due dates in order to avoid the application of underpayment penalties.
Qualifying New Hampshire Taxpayers
Qualifying taxpayers will have until June 15, 2020, to remit payment without usual penalties and interest. This relief is available for any business tax or interest & dividends tax return or extension payment due on April 15, 2020, as well as any business tax or interest & dividends tax quarterly estimated tax payment due on April 15, 2020. Interest and penalties will accrue without any relief on such payments that are not satisfied by June 15, 2020.
Taxpayers that qualify for this additional relief may still take advantage of the automatic 7-month extension of the time to file their tax return under the circumstance described above, as long as their extension payment is received by June 15, 2020, in an amount equal to either their total tax liability for tax year 2018 or 2019. The automatic 7-month extension of time to file the tax year 2019 return will be measured from the April 15, 2020 due date and will therefore be due no later than November 15, 2020.
Given the relative complexity of the New Hampshire COVID-19 tax filing and payment relief program, taxpayers may find it helpful to review the DRA’s releases on the program which can be accessed at https://www.revenue.nh.gov/publications/press/documents/dra-covid-nineteen-tax-relief.pdf (which includes a chart) and https://www.revenue.nh.gov/tirs/documents/2020-001.pdf.
Massachusetts has extended tax filing and payment deadlines as follows:
The Personal income tax return and payment due date are extended until July 15, 2020.
Sales and Use Taxes due dates for businesses that paid less than $150,000 in sales and use taxes for the 12-month period ending February 29, 2020 have been extended. Returns and payments due during the period beginning March 20, 2020 and ending May 31, 2020, inclusive are suspended and shall be due on June 20, 2020. This suspension does not apply to marijuana retailers and marketplace facilitators or vendors selling motor vehicles.
Penalties for late filing and payment of meals taxes and room occupancy taxes due between March 20, 2020 and May 31, 2020, have been waived, although interest will continue to accrue. The deadline for filing and payment of such taxes is now June 20, 2020 for qualifying businesses. Marketplace facilitators are not eligible for the extension.
Maine’s due date for filing state income tax returns and making the related payments has been extended from April 15, 2020 to July 15, 2020.
The Vermont Department of Taxes has announced that the deadline for filing income tax has been extended from April 15, 2020 to July 15, 2020. Additionally, the state will provide relief to businesses owing Meals and Rooms Tax and Sales and Use Tax by foregoing any penalty or interest for those who are not able to meet the existing March 25, 2020 or April 25, 2020 deadlines.
- The IRS has announced that its mission-critical functions will continue, including accepting tax returns and sending refunds, despite the COVID-19 crisis.
- However, the IRS has temporarily suspended almost all face-to-face contacts with taxpayers until further notice.
- While able to receive mail, the IRS will be responding to paper correspondence only to a very limited degree during this period.
- For more detail and up to date status of IRS functions go to https://www.irs.gov/newsroom/irs-operations-during-covid-19-mission-critical-functions-continue
Changes in Federal tax filing and payment requirements
- Income Tax. All taxpayers have until July 15 to file their 2019 federal income tax returns and pay their taxes. The extension of time for payment without interest and penalties applies to all tax payments regardless of amount. Taxpayers can file at any time within the extension but may want to file early if they are due a refund.
- Estimated Tax. Federal 2020 first quarter income tax estimated tax payments, which are otherwise due on April 15, are due on July 15. However, as of now it appears that 2020 second quarter estimated income tax payments are still due on June 15—before the first quarter estimated income tax payments.
- Gift Tax. Any person owing federal gift tax or generation-skipping transfer tax on April 15 will now have until July 15 to make that payment, free of interest or penalties. The due date for filing Form 709, which is used to report taxable gifts and to allocate use of a person’s lifetime GST exemption, has also been pushed back.
- Other Taxes. No extension of filing or payment has been issued for types of taxes other than federal income tax and gift tax (e.g., payroll, excise, etc.)
New Payroll Tax Credits
- New federal refundable payroll tax credits have been established under the Families First Coronavirus Response Act (the “Act”).
- The credits reimburse employers with fewer than 500 employees, dollar for dollar, for the cost of providing coronavirus-related leave to their employees.
- The new tax credits apply to (i) qualified emergency sick-leave payments (including child care leave payments) and (ii) qualified family-leave payments, both as made by the employer pursuant to the Act. Details regarding the payments to which the credits relate are beyond the scope of this summary but can be reviewed at the Sheehan Phinney Alert “What Employers Need to Know About the Families First Coronavirus Response Act”. In addition The IRS has published Frequently Asked Questions on the Act at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions
- The credits are available with respect to qualified payments made between April 1, 2020, and December 31, 2020.
- Eligible employers who make qualifying paid-leave and sick or child care leave payments will be able to retain an amount of the payroll taxes equal to the amount of the qualifying payments, rather than deposit them with the IRS.
- The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.
- If there are not sufficient payroll taxes to cover the qualified payments, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less.
- Equivalent credits are available to self-employed individuals based on similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.
High-Deductible Health Plans (HDHPs)
- The IRS has announced that high-deductible health plans (HDHPs) that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA). Also, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.
Tax Provisions in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as passed by the Senate on March 25, 2020
In addition to the brief outline of CARES Act tax provisions below, we have posted more detailed Alerts for the Individual and Business tax provisions in the Act here: CARES Act Individual Tax Provisions, CARES Act Business Tax Provisions.
Tax Relief Provisions for Individuals:
- Qualifying individuals can withdraw up to $100,000 from retirement accounts during 2020 without facing the 10 percent early withdrawal penalty. The withdrawal is still generally subject to income tax, but taxpayers can spread the income over a 3-year period beginning with 2020 or avoid any tax by repaying the distribution to the retirement plan within three years of receiving it.
- The amount an individual may borrow from his or her retirement plan is increased from $50,000 to $100,000 for the 180-day period beginning after enactment of the Act
- Individuals will not be required to take “required minimum distributions” from their retirement plans in 2020.
- Individuals who do not itemize their deductions will be able to take a $300 above-the-line deduction for charitable contributions for any year starting with 2020. For taxpayers who do itemize their deductions, cash contributions to charities in 2020 are deductible up to 100% of adjusted gross income.
- An employee can benefit tax-free from an employer paying up to $5,250 in 2020 of an employee’s student loan obligation, but the $5,250 limit is combined with amounts an employer pays for an employee’s qualified educational expenses.
- For 2020 and retroactive to 2018, the $250,000 net business loss limitation that capped losses that an individual could use to offset other sources of income does not apply.
Tax Relief Provisions for Businesses
- For 2020 only, employers with up to 100 employees are entitled to a credit against their 6.2% share of Social Security payroll taxes if they are forced to suspend or close their operations due to COVID-19 but continue to pay their employees during the shut-down. This refundable tax credit is equal to 50 percent of employee compensation (inclusive of health insurance) up to $10,000 per employee. Employers with fewer than 100 employees may receive the credit whether they are closed are not.
- Also for 2020 only, employers (including the self-employed) can delay the payment of the 6.2% employer portion of their Social Security payroll tax until the end of 2020 and pay back the liability over the next two years. This is not available for employers who take out a payroll protection loan forgiven under the Act.
- Firms will be able to carry back net operating losses (NOLs) earned in 2018, 2019, or 2020 for five years, but can elect to carry them forward instead, and the NOL limit of 80 percent of taxable income is also suspended, so firms may use the full amount of their NOLs to offset their taxable income.
- The net interest deduction limitation, which currently limits businesses’ ability to deduct interest paid on their tax returns to 30 percent of adjusted taxable income has been increased to 50 percent for 2019 and 2020.
- Firms with alternative minimum tax credit carryforwards can claim larger refundable tax credits than they otherwise could.
- The correction of a glitch in prior tax law retroactive to 2018 permitting qualified improvement property to depreciated over 15 years rather than 39 years.
- The excise tax applied on alcohol used to produce hand sanitizer is temporarily suspended for tax year 2020 and aviation excise taxes are suspended until January 1, 2021.