A Message from Harper & Pearson Company, P.C.
We are fully operational and committed to serving our clients. As the novel coronavirus (COVID-19) continues to spread in the U.S. and across the world, our priority at Harper Pearson is the safety and well-being of our people, clients, families, and community. We are monitoring daily updates and recommendations from the CDC. We have communicated workplace guidelines to our Harper Pearson team members and have implemented strategies in our workplace that align with the recommendations to do our part with the prevention while also minimizing the impact that COVID-19 could have on our services. We understand that in this time of uncertainty you may have growing concerns for the financial health of yourselves and your businesses, employees, and families. We are closely monitoring federal and state updates that impact our clients and their businesses and will continue to update our COVID-19 Resources page with articles and information as these issues rapidly develop and change.
Special Edtion Tax Newsletter - May Newsletter
Revised Form 941 for 2020 - Employer's Quarterly Federal Tax Return
As part of the FFRCA, and CARES Act, Congress has provided for various payroll tax credits and has revised Form 941.
Please see below for a copy of the draft form along with instructions for filling out the new form. Please note, an employer may NOT claim the employee retention credit, if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program (PPP) that is authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Paycheck Protection Loan”). An employer that receives a Paycheck Protection Loan should not claim an employee retention credit.
Instructions for Form 941: https://www.irs.gov/pub/irs-df...
Revised Form 941: https://www.irs.gov/pub/irs-df...
Changes to Section 125 cafeteria plans -
The IRS released guidance on May 12, 2020, to address unanticipated changes in expenses as a result of COVID-19. The guidance allows temporary changes to section 125 cafeteria plans to extend the claims period for health flexibility spending arrangements (FSAs) and dependent care assistance programs and allows taxpayers to make mid-year changes. An employer, in its discretion, may amend one or more of its cafeteria plans to allow the changes noted below.
Notice 2020-29 provides greater flexibility by -
Notice 2020-33 increases the amount of funds that can carry over without penalty at the end of the year for FSAs from $500 to a maximum of $550, as adjusted annually for inflation.
Texas Franchise Tax Extended Due Date
The COVID-19 pandemic is disrupting life for people and businesses nationwide. To provide Texas franchise taxpayers some relief, the Texas Comptroller of Public Accounts is automatically extending the due date for 2020 Texas franchise tax reports to July 15, 2020, to be consistent with the Internal Revenue Service (IRS).
The due date extension applies to all franchise taxpayers. The extension is automatic, and franchise taxpayers do not need to file any additional forms.
Texas Franchise Tax Extended Due Date - https://comptroller.texas.gov/taxes/franchise/filing-extensions.php
Tax Update on the Response to the COVID-19 Outbreak:
In Notice 2020-23 issued on April 9th, the IRS has extended more tax deadlines for individuals, trusts, estates, corporations, nonprofit organizations, and other non-corporate tax filers. This broad relief includes a variety of tax filings and payment obligations that are due between April 1, 2020, and July 15, 2020, and the relief is automatic, so taxpayers do not have to file extensions or submit other documentation to the IRS to obtain relief. The notice also suspends interest, additions to tax, and penalties for late filing or late payment until July 15th.
Taxpayers who need additional time beyond July 15, 2020, have until July 15th to request an extension, but the extension date may not go beyond the original extension date (for calendar-year filers, this would be September 15th for partnerships and S corporations; October 15th for individuals and C corporations; and November 15th for Form 990 series filers).
The relief includes not only the filing of the specified forms, but also all schedules, returns, and other forms that are filed as attachments to these forms or are required to be filed by the due date of the specified forms (for example, Schedule H and Schedule SE, as well as Forms 3520, 5471, 5472, 8621, 8858, 8865, and 8938). Elections that are made or required to be made on a timely filed specified form will be timely made if filed on the specified form or attachment on or before July 15, 2020 (unless an extension is filed).
The relief also applies to time-sensitive acts listed in Regs. Secs. 301.7508A-1(c)(1)(iv) through (vi) and Rev. Proc. 2018-58.
Some common filings and payment obligations now added to the list of filings granted relief by this notice include:
Estimated tax payments due June 15, 2020 (including Forms 1040-ES, 1041-ES; 1120-W; and 990-W)
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
Form 990, Return of Organization Exempt from Income Tax
Form 990-T, Exempt Organization Business Income Tax Return
Form 990-PF, Return of Private Foundation
Form 5500, Annual Return/Report of Employee Benefit Plan
Form 1120 (and other filings) for certain fiscal year taxpayers
Deadline for filing a 2016 return to claim a refund
Installment payments under IRC Section 965(h)
New CARES Act Provides Tax Relief
Key tax breaks in COVID-19 law
In response to the COVID-19 outbreak, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27. This new federal legislation includes relief for both individuals and businesses of all shapes and sizes. Following is a brief roundup of several key tax-related provisions affecting individuals and small business owners.
Individual Tax Relief:
Stimulus checks: The most publicized provision in the new law provides $1,200 cash payments to single filers and $2,400 to joint filers. Plus, you will receive $500 for each “child” as defined by the Child Tax Credit (CTC). Generally, the CTC is available for dependent children under age 17 living in your household.
But the checks phase out for higher-income taxpayers. The phase-out begins at $75,000 of adjusted gross income (AGI) for single filers and $150,000 of AGI for joint filers. The phase-out is complete for single filers with an AGI of $99,000 or more and $198,000 for joint filers.
The payments are technically advances of refundable credits. These amounts are generally based on your 2019 tax return, if you have already filed it, or your 2018 return. Nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, estates, and trusts are not eligible.
Required minimum distributions: Most qualified plan and IRA owners must begin taking “required minimum distributions” (RMDs) after attaining age 72 (recently increased from age 70½). But the CARES Act suspends all RMDs, from a defined contribution plan under Section 403(a) or 403(b), eligible governmental deferred compensation plans, and individual retirement accounts (IRAs), including inherited accounts, for 2020.
Charitable contributions: Due to changes in the Tax Cuts and Jobs Act (TCJA), many taxpayers who previously itemized now claim the standard deduction. Thus, they receive no current tax benefit from their charitable donations. The CARES Act allows you to deduct up to $300 in donations to qualified charities even if you do not itemize on your tax return and regardless of your AGI. In addition, the Act removes the adjusted gross income (AGI) limit for charitable contributions by individuals in 2020 for gifts to qualifying charities. For both provisions under the Act, only cash gifts qualify and gifts to donor-advised funds and 509(a)(3) supporting organizations are not eligible.
Early plan withdrawals: Generally, if you make a withdrawal from a qualified retirement plan or IRA before age 59½, you must pay a 10% penalty tax in addition to regular income tax. But the tax code includes a list of exceptions to the penalty. The new law adds another exception for coronavirus-related distributions of up to $100,000 in 2020. The withdrawal is still subject to income tax but may be spread over a three year period beginning with 2020. Taxpayers may also recontribute the withdrawn amount within three years in which case it is not taxable. In addition, the new law enhances the rules for loans from qualified plans.
Student loans: Employers may provide up to $5,250 this year in student loan repayment benefits on a tax-free basis. In other words, employers could assist with loan payments and employees would not be responsible for tax on those amounts, up to the stated limit. Borrowers can defer payments on qualified student loans without any penalty until September 30.
Business Tax Relief:
Employee retention credit: The new law authorizes a credit for 2020 only against an employer’s 6.2% share of Social Security payroll taxes. This refundable credit is available to businesses that suspend or close operations due to COVID-19, or certain companies with reduced gross receipts, as long as they continue to pay their employees. For each eligible quarter, the credit is equal to 50% of the first $10,000 of qualified wages per employee, through the quarter ending on December 31, 2020.
Payroll tax delay: A qualified employer will be able to defer its share of the 6.2% Social Security tax that would otherwise be due through December 31, 2020. The new law permits 50% to be paid by the end of 2021 and 50% by the end of 2022. Similarly, a self-employed taxpayer may defer payment of 50% of self-employment tax, with 25% due at the end of 2021 and 25% due at the end of 2022.
Net operating losses: The TCJA changed the rules for net operating losses (NOLs). Briefly stated, it disallowed carrybacks relating to NOLs after 2017 and provided an indefinite carryforward period with a limit of 80% of taxable income. The CARES Act repeals these NOL changes and also temporarily eliminates a cap for net losses based on $250,000 of income for single filers and $500,000 for joint filers.
Business interest limit: Under the TCJA, business interest expense deductions were limited to the sum of business interest income and 30% of “adjusted taxable income” (ATI). A provision in the CARES Act temporarily increases the ATI limit to 50% for 2019 and 2020.
Qualified improvement property: Initially, Congress had intended for qualified improvement property placed in service after 2017 to have a 15-year depreciation recovery period, which would make it eligible for special “bonus depreciation.” However, due to a drafting error in the TCJA, the 15-year recovery period for this type of property wasn’t reflected in the statute. Now the CARES Act fixes this problem retroactive to January 1, 2018.
• Eases the excess business loss rules under IRC Section 461(l) for 2018, 2019 and 2020
• Accelerates the ability of corporations to receive refunds of AMT credits to 2019, or 2018 if elected
• Increases the net income limitation for charitable contribution deductions for corporations from 10% to 25% for 2020
Finally, the CARES Act includes numerous provisions signed to help small businesses weather the storm, including hundreds of billions of dollars in emergency funds to cover immediate operating costs and loans through the Small Business Administration (SBA). Extensive improvements to unemployment benefits for individuals were also approved.
The CARES Act also provides significant federal funding for a range of non-tax measures to assist individuals and businesses impacted by the economic effects of COVID-19. While not the focus of this update on the tax relief included in the CARES Act, some of the key programs include:
We’ve attached a helpful reference sheet on the CARES Act related to tax relief associated with the recent stimulus package. You can download the reference sheet here.
Harper Pearson has taken measures to achieve our first priority of protecting the health and safety of our employees, clients, and the community at large. Our office will remain open for business, but access to our office will be modified as follows:
1. We encourage clients to send information electronically or via a delivery service.
2. Please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310 if you need assistance.
3. There will be someone at our office from 8:00 am to 5:00 pm to meet with you if necessary.
4. The office will be closed to nonessential visitors such as family, friends and nonoperational vendors.
For those Harper Pearson clients practicing social distancing, or you do not feel comfortable coming to our office in person, these options are available to you:
• Email remains the most effective option for electronic communication.
• Electronic document sharing may be arranged using Harper Pearson’s secure portal. If you would like to be set up on the firm’s portal, please contact Shannon Allison at email@example.com or your Harper Pearson contact. An electronic signature of tax returns is available using RightSignature.
Your Harper Pearson contact can also set-up a virtual meeting, conference call, and video conferencing with you as an alternative to in-person meetings. You can also send documents via FedEx, UPS, USPS, or any courier service. Please coordinate this with your Harper Pearson contact. For more information, please contact us at firstname.lastname@example.org or call our office directly at 713.622.2310.