Federal Tax Relief and Economic Response to COVID-19

COVID-19

The USA is the nation that is most affected by the spread of the virus (COVID-19) at the moment. Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus. It is believed that the virus primarily spreads from person-to-person through droplets produced when an infected person coughs or sneezes.

It has been spreading rapidly, and the US government issued several measures to prevent even more people from being infected. Most of the states urged the residents to stay home, and if they have to go out, they should stay six feet away from anyone not part of their household.

Nonessential businesses were ordered to close and according to the New York Times, as of April 1, 2020, more than three-quarters of the U.S. population has been urged or ordered to stay at home. The lockdowns have caused serious economic disruptions and consequences leading many Americans to file for unemployment claims.

In response to the COVID-19 outbreak, the Treasury, IRS, and the federal government have announced several changes to the tax filing season and coronavirus relief and stimulus packages.

The Coronavirus Aid, Relief and Economic Security (CARES) Act

President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, 2020. It is a $2 trillion stimulus package in response to the COVID-19 pandemic. It is made to provide financial relief to families, individuals, and businesses.

 

Stimulus checks for individuals and joint taxpayersThere will be stimulus checks for individuals, which will be up to $1,200 and $2,400 for joint taxpayers. There will also be an additional $500 for each qualifying child.

Taxpayers who have an adjusted gross income of up to $75,000, or $150,000 for married couples filing jointly, will have the full amount of the recovery rebate. If your income is above these amounts, the payment is reduced by $5 for each $100 above the $75,000/$150,000 thresholds.

This year’s stimulus check will be paid based on the information from your most recent tax return. It will be reconciled in the tax year 2020. It is believed that 90% of Americans will receive either full or partial payments following the CARES Act.

 

Increase in unemployment paymentsUnemployment payments will be increased by $600 weekly. This will last through July 31. People who were not eligible for unemployment will now be eligible. This bill will include freelancers, gig workers, self-employed people, part-time employees, and independent contractors.

 

Student loan payment reliefThe CARES Act will help most federal student loan borrowers by temporarily pausing payments- including principal and interest. This refers to federally-held student loans through September 30, 2020.

 

Financial assistance provided for eligible non-profits and self-employed individualsThe Paycheck Protection Program sets aside $350 billion in government-backed loans from private banks.

The Paycheck Protection Program offers loans for small businesses with fewer than 500 employees, select types of businesses with fewer than 1,500 employees, 501(c)(3) non-profits with fewer than 500 workers and some 501(c)(19) veteran organizations. Also, the self-employed, sole proprietors, freelance and gig economy workers are eligible to apply. Businesses, even without a personal guarantee or collateral, can get a loan as long as they were operational on February 15, 2020.

 

Delay of Social Security payroll tax payment for employersThe CARES Act permits most employers to delay payment of employer-portion Social Security taxes (6.2%).  The delay applies to Social Security taxes due on wages paid between the date of enactment of the CARES Act and January 1, 2021.  50% of the delayed payroll taxes will be due by December 31, 2021, with the other 50% due by December 31, 2022. 

Tax Deadline Changed

According to the IRS, the deadlines to FILE and PAY federal income taxes are extended to July 15, 2020.

This relief applies to all individual returns, trusts, and corporations. The relief is automatic, taxpayers do not need to file any additional forms or call the IRS to qualify. It only applies to federal income returns and tax (including the tax on self-employment income) payments otherwise due April 15, 2020.

If you pay all the taxes by July 15, you will avoid interest and penalties. Additionally, if you’re an individual taxpayer who needs more time beyond July 15, you can request a filing extension by filing Form 4868. And if you’re a business, you need to file Form 7004.

If you have any questions and need help concerning your finances, feel free to contact our experts at Prudential Bank. We’re here to help! Contact us!

Stay home, stay safe!


Article Sources

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  1. https://www.who.int/health-topics/coronavirus#tab=tab_1
  2. https://www.nytimes.com/interactive/2020/us/coronavirus-stay-at-home-html
  3. https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know
  4. https://www.consumerfinance.gov/about-us/blog/what-you-need-to-know-about-student-loans-and-coronavirus-pandemic/
  5. https://davidscott.house.gov/uploadedfiles/uc_faq_cares_act.pdf
  6. https://www.uschamber.com/co/start/strategy/cares-act-small-business-guide
  7. https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/
  8. https://www.irs.gov/newsroom/tax-day-now-july-15-treasury-irs-extend-filing-deadline-and-federal-tax-payments-regardless-of-amount-owed
  9. https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020

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