The CARES Act Explained: Part 1 - Tax Relief: 5 Key Takeaways
With the recent legislation passed by the U.S. Congress in the form of the CARES Act, many C&N customers rightfully have lots of questions. Our experts have developed a series of helpful summaries to better explain the key things you need to know and the relief options that may be available to you.
In Part 1 of our series, we explain the Internal Revenue Service’s Notice 2020-18, which provides more detail as to the changes in deadlines for filing and paying federal income tax.
In summary, combined with separate guidance from the PA Department of Revenue, the deadline for filing and paying both federal and Pennsylvania income tax returns for 2019 has been postponed until July 15, 2020. Since not all states have followed this formula, we are happy to help our non-PA customers with answers to their state’s updated deadlines. In the meantime, here are some questions answered about the new notice:
1. Are 2019 balances due and 1st quarter 2020 estimated payments handled the same way?
Both the IRS and PA Department of Revenue have clarified that the deadline move applies to both 2019 balances due and to first quarter 2020 estimated payments. However, with respect to second quarter 2020 estimated payments due June 15, the changes are inconsistent. The IRS will maintain the June 15 due date for second quarter estimated payments, whereas the PA Department of Revenue will be moving that due date to July 15 to coincide with the first quarter. Yes, that’s right: first quarter federal estimated payments will be due AFTER second quarter federal estimated payments!
2. Who does this affect?
Notice 2020-18 clarifies that the due date postponement from April 15 to July 15 applies to “an individual, a trust, estate, partnership, association, company or corporation,” alleviating previous concerns that these postponements would apply to individuals only and not other types of taxpayers.
3. What if my tax payments come from my C&N Wealth Management account?
For 2019 balances due and first quarter 2020 estimated payments scheduled to be paid from C&N customer accounts, we will be delaying those payments until early July even if the returns are complete and the amounts due are known. Considering current market conditions, we believe it makes sense to take advantage of this interest- and penalty-free postponement.
4. What’s the difference between a “postponement” and an “extension?
Notice 2020-18 specifies that the due date move from April 15 to July 15 is a “postponement,” not an “extension.” This is an important distinction because it means the due date moved, it didn’t just get extended. Therefore, the deadlines for Traditional and Roth IRA contributions and Health Savings Account contributions move as well. Under normal circumstances, the rule is those contributions are due on the due date of the return without “extension,” which is why we are happy to see this be a “postponement” instead of an “extension.”
5. What might we expect next?
The next phase of tax changes to deal with the COVID-19 pandemic will come from the Coronavirus Aid, Relief and Economic Security Act (CARES Act) passed by Congress and signed into law by President Trump on March 27, 2020. The most commonly discussed provision of this legislation is the impending income tax rebates of up to $1,200 per adult and $500 per child, subject to certain conditions. There are many additional tax benefits, including:
- Limited expanded means of accessing IRA and employer-sponsored retirement plan funds free of the 10% additional tax regardless of age
- A waiver of 2020 required minimum distributions (RMD) from Individual Retirement Accounts and employer sponsored retirement plans, subject to certain conditions. Even if a taxpayer does not qualify for an RMD waiver, for taxpayers not currently needing cash, it makes sense to delay RMDs as late in 2020 as possible to assess future developments. If not, at least those taxpayers will have an opportunity for their investments to recover.
- Removal of 2020 50% of Adjusted Gross Income limitation on deductibility of charitable contributions and allowance of up to $300 of contributions to qualified charities to be deducted by any taxpayer, even if that taxpayer does not itemize.
It can be challenging to fully understand and decipher these changes when they are enacted. The C&N team is committed to keeping you informed and prepared as more details of the CARES Act are reviewed and better understood. You can look for the next part of our series, “The CARES Act Explained,” to be published soon.