Covid-19 Federal and California State Tax Updates & Changes

Current Federal and California State tax updates related to the COVID-19 Coronavirus.
IRS and California actions and federal tax legislation already enacted to ease tax compliance burdens and economic pain caused by COVID-19.
By BFBA

Federal:

Filing and payment deadlines deferred. After briefly offering more limited relief, the IRS almost immediately pivoted to a policy that provides the following to all taxpayers-meaning all individuals, trusts, estates, partnerships, associations, companies or corporations regardless of whether or how much they are affected by COVID-19:

  1. For a taxpayer with a federal income tax return or a federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
  2. The taxpayer doesn’t have to file Form 4868 (automatic extensions for individuals) or Form 7004 (certain other automatic extensions) to get the extension.
  3. The relief is for federal income tax payments (including tax payments on self-employment income) and federal income tax returns due on April 15, 2020, for the person’s 2019 tax year.  It also applies to federal estimated income tax payments (including tax payments on self-employment income) due on April 15, 2020, for the person’s 2020 tax year.
  4. At this time the estimated payments for the 2nd quarter, which are due June 15, 2020, have not been extended.
  5. No extension is provided for the payment or deposit of any other type of federal tax (e.g. estate or gift taxes) or the filing of any federal information return.  At this time it appears this relief does not apply to the required deposit to maintain a fiscal year, which is still due May 15, 2020.
  6. As a result of the return filing and tax payment postponement from April 15, 2020, to July 15, 2020, that period is disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the postponed income tax returns or pay the postponed income.
  7. This relief does apply to fiscal year taxpayers when the returns are due April 15, 2020 (even if it is the extended due date).  It does not apply to fiscal year taxpayers when the returns are due on any other date besides April 15, 2020.
  8. This relief does not apply to normal filing, payment, and deposit due dates for both payroll and excise taxes.
  9. If you are due a refund, there is no reason to delay their filing as most refunds are still being issued within 21 days.
  10. The extension of the tax-filing deadline also postpones the deadline for making 2019 prior-year contributions to traditional and Roth IRAs from April 15 to July 15. Normally, IRA contributions for the prior year are not permitted after April 15, even if a client has an individual extension, so careful tracking will be essential.
  11. Favorable treatment for COVID-19 payments from Health Savings Accounts. Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the required deductible levels. But IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount.

 

California:

California has also extended its tax filing and payment deadline to July 15, 2020, waiving interest and late filing and late payment penalties for all individuals and business entities for:

  1. 2019 tax returns
  2. 2019 tax return payments
  3. 2020 1st and 2nd quarter estimated payments
  4. 2020 LLC taxes and fees
  5. 2020 Non-wage withholding payments.

California taxpayers will not need to claim any special treatment or call the FTB to qualify for this relief.