Tax Law Issues Related to COVID-19
The economic stress caused by the COVID-19 outbreak has led the federal government to lighten the burdens on taxpayers. The government extended the deadline for filing 2019 federal taxes and making federal tax payments to July 15, 2020. The deadline for first quarter estimated taxes in 2020 also was extended to July 15. States generally followed suit. On March 17, 2021, the IRS extended the 2020 federal tax deadline to May 17, 2021, and some states followed suit.
Taxpayer Relief Under the CARES Act and New 2021 Relief
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal stimulus package intended to boost the economy and relieve pressure on individuals and families. Under the CARES Act, qualifying individuals received a direct cash payment from the federal government of up to $1,200.
Under the Consolidated Appropriations Act of 2021, an extension of the CARES Act, new cash payments will be distributed to qualifying individuals. The payments consist of $600 for individuals who made up to $75,000 in 2019 and $1,200 for couples who made up to $150,000 in 2019 with an extra $600 for each dependent child under 17 years old. These payments are reduced incrementally for individuals who made between $75,000 and $87,000 (or $174,000 if filed jointly) in 2019.
The American Rescue Plan Act of 2021, signed on March 11, provides a third round of stimulus payments for qualifying individuals. Individuals who reported income of $75,000 or less on their last tax return will receive $1,400, and couples who reported $150,000 or less will receive $2,800. Like the Consolidated Appropriations Act of 2021, the payment amount decreases incrementally for those making between $75,000 and $80,000 (or joint filers making between $150,000 and $160,000). Individuals making more than $80,000 or joint filers making more than $160,000 will not receive any payment. Heads of households will receive the full amount if their reported income was $112,500 or less, and a smaller amount if their income was between $112,500 and $120,000. Dependents, including full-time students younger than 24 and adult dependents, may be eligible for a payment of $1,400.
The CARES Act and the Consolidated Appropriations Act provide several additional benefits to taxpayers. Until January 21, 2021, employers can make tax-free student loan payments for their employees, up to a $5,250 annual limit. The payments will not count toward the employee’s income. Meanwhile, the early withdrawal penalty will be waived for up to $100,000 withdrawn from a retirement plan. Businesses and self-employed individuals will not need to pay Social Security payroll taxes for employers in 2020, although they will need to pay back this amount in December 2021 and 2022. Finally, the CARES Act provides supplements to unemployment benefits and loans through the Small Business Administration and the Federal Reserve lending program.
