The Internal Revenue Service (“IRS”) and the California Franchise Tax Board (“FTB”) urgently addressed tax relief measures for taxpayers affected by the coronavirus pandemic.
These measures include a 90-day extension of time to pay certain federal income tax payments (to July 15, 2020) and a 90 to 120-day extension of time to make California tax payments (also to July 15, 2020).
Additionally, the FTB is extending the time to file 2019 California returns, but the IRS as of now is not extending the deadline for filing federal returns.
Federal Income Tax Payment Relief
Following the President’s declaration of a national emergency on March 13, 2020, the U.S. Treasury Department and IRS issued guidance yesterday, on March 18, 2020, allowing taxpayers to postpone until July 15, 2020 federal income tax payments that are otherwise due on April 15, 2020 up to specified limits.
Penalties and interest will not accrue during this time.
Please note the following highlights of Notice 2020-17 issued yesterday:
- An “affected taxpayer” includes any person with a federal income tax payment due April 15, 2020 (thus, this includes all taxpayers);
- Individual and other non-corporate tax filers may defer up to $1,000,000 (the dollar limit is the same for single individuals and for married filing jointly);
- Corporate taxpayers and members of a consolidated group may defer up to $10,000,0000.
This relief is available for the following payments due on April 15, 2020: a) federal income tax payments for the 2019 tax year; and b) federal estimated income tax payments for the 2020 tax year (i.e., Q1 payments). Such payments include taxes on self-employment income, but do not include any other type of federal tax, such as payroll tax.
Please note, this guidance does not change the April 15 filing deadline for federal tax returns or other information returns. Thus, taxpayers should still file these returns on time.
California Tax Filing and Payment Relief
To conform with the new IRS guidance, the FTB also announced yesterday, on March 18, 2020, that it will extend until July 15, 2020 the time to file 2019 California tax returns and make payments that were otherwise due between March 15, 2020 and July 15, 2020.
The FTB’s guidance is like the IRS notice, except a) California taxpayers have an extension of time to file and pay; b) taxpayers are not subject to the federal dollar limitations; and c) the types of payments that may be postponed are broadened to include 2020 LLC taxes and fees, 2020 Q2 estimated tax payments (in addition to Q1), and 2020 non-wage withholding payments (i.e., California nonresident withholding).
Also, to conform with the federal tax relief provisions, the FTB simplified its definition of an “affected taxpayer” to mean all individuals and business entities. Note, taxpayers claiming the COVID-19 relief no longer need to claim any special treatment nor call FTB to qualify.
Regarding state payroll taxes, the California Employment Development Department (“EDD”) announced that employers directly affected by COVID-19 may request up to a 60-day extension of time to file their state payroll reports and/or deposit payroll taxes without penalty or interest. The EDD has not provided any insight into what it means by “directly” affected.
To obtain the EDD payroll relief, a written request for extension must be received within 60 days from the original delinquent date of the payment or return. It is not known at this time whether the EDD will update its relief based on the FTB’s recent announcement.
Congressional Coronavirus Relief Bill (H.R. 6201):
On March 16, 2020, the House passed an updated version of H.R. 6201, a coronavirus relief bill that provides a) paid leave benefits to employees; b) tax credits for employers and self-employed taxpayers; and c) FICA tax relief for employers. Once the House and Senate agree on a final version of the bill, we will release a Tax Brief outlining the applicable tax provisions.
We will continue to stay abreast of any developments in this area and will send updated Tax Alerts as necessary. For more information on this Tax Alert, please contact any of the following individuals:
Name: Meghan Andersson, JD, LLM
Office: Irvine, CA
Phone: (949) 623-0542
Name: Jason Borkes, CPA, CM&AA
Office: Irvine, CA
Phone: (949) 623-0516
Name: Mark Cook, MBA, CPA, CGMA
Office: Irvine, CA
Phone: (949) 623-0478