Coronavirus to impact tax-filing deadlines and tax payments

You have likely heard news items indicating that both the Trump administration and Congress are considering extending the April 15 filing deadline, as well as looking for ways to provide stimulus to the economy. In his address last evening, the president stated, “Using emergency authority, I will be instructing the Treasury Department to defer tax payments, without interest or penalties, for certain individuals and businesses negatively impacted” (emphasis added).

As of yet, there are no details available regarding this statement or how the deferral would be implemented. Critical factors were not released, including how “certain individuals” will be identified and how it will be determined who is “negatively impacted.”

Treasury is also considering extending the filing deadline for all Americans. Speculation is the extension would apply to both the filing of Form 1040 and any payments due on April 15. The IRS often extends filing deadlines in affected areas after natural disasters, and the tax code specifically authorizes the Treasury to grant delays following presidentially declared disasters.

At this time, no specific proposals have been released. Some important items to keep in mind:

• There is no indication as to the length of any extension period.
• It is unclear if the extended payment period will apply to first quarter 2020 estimated payments.
• While Treasury has the authority to waive late filing and payment penalties, it is uncertain whether they can unilaterally waive interest charges or if congressional action would be required.
• It is critical to note that these extended filing and payment deadlines are being contemplated by the federal government and will not apply to state individual tax returns. States may also consider extending their own filing deadlines, so careful monitoring is required.
• There has been no indication that the extended filing deadline would apply to either corporate or trust returns that are also due on April 15.

We will be providing additional alerts once Treasury releases details of any tax filing and payment extensions.

Tax relief for workers and businesses

The president also called for payroll tax relief through a tax holiday. Such a proposal may be similar to the payroll tax holiday that reduced the Social Security contribution rate for employees and the self-employed by 2 percentage points from January 2011 through December 2012. This measure would require congressional action.

A one-year cut of 2 percentage points in the payroll tax, as was done in 2011, could generate modest economic growth – about 0.3%, according to the Penn Wharton Budget Model. The 2011 payroll tax cut under President Barack Obama was approximately $896 for the average household, according to the Urban-Brookings Tax Policy Center. Spread over twice-a-month pay periods, that amounted to $37.33 extra in each check.

The House has not expressed support for enacting a payroll tax holiday, but is expected to vote on a bill that would provide emergency paid sick leave, broader unemployment benefits, and free testing for the COVID-19 virus. The Senate is not likely to act before its weeklong break.

Republican Sen. John Cornyn, a member of Sen. Mitch McConnell’s leadership team, said he sees the Senate taking a two-part approach to addressing the outbreak, with the chamber possibly taking up a “consensus” package that could include free testing for the virus and paid sick leave shortly after the recess. Such issues as infrastructure spending or a possible payroll tax holiday would have to come later after more discussion about the best approaches.

Both chambers of Congress are in recess next week and expect to return to Washington the week of March 23. Consequently, no immediate stimulus bills are likely to be enacted in the short term.

We encourage you to reach out to your Baker Tilly advisor to see how these developments affect your tax position.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.