COVID-19: “Keep It Simple” – Tax Changes You Should Know Now!

(updated Apr. 5, 2020)

Part I: Individuals.

Taxes? Snore. Help now? Snort.

It may not be the most fascinating topic, but the lawyers at Dysart Willis have compiled a few no-nonsense guides that can assist you through the ever-evolving tax laws and initiatives as the novel coronavirus continues to impact the United States.

COVID-19 Relief Checks: Show Me (Some) Money!

You heard that the U.S. government is giving out $1,200 checks for coronavirus relief, right? Chances are, you are wondering how much you will get. The Washington Post released a helpful calculator to help you estimate what, if anything, you should actually receive.

“But WHEN will I get the money?!” you ask. This is a very important question given that millions of Americans lost their jobs in March, and April 1st – with all the bills that are due at the beginning of a new month – has already come and gone.

The Treasury Department’s stated goal is to begin rolling out payments starting on April 17th. However, that does not mean the check will be in your hands on the 17th…payments will more likely go out in batches. Direct deposits are scheduled to arrive first, so if you have filed your 2019 federal tax return, expected a refund, and sent the Internal Revenue Service (IRS) your bank account information for a direct deposit, you should see your check sometime shortly after April 17.

If you have not yet filed your taxes for 2019 or you have not provided direct deposit information to the IRS recently, you can (hopefully) expect your refund to be issued within about eight weeks after the 17th.

Relief Check Caveats:

There are a number of things that could prevent you from receiving a coronavirus relief check. First, if you have not filed a federal tax return for 2018 and 2019, you very likely do not qualify. Non-resident aliens and dependents also do not qualify.

What if you made too much money in 2018 and 2019? The size of the payments start scaling down if you made greater than $75,000 and zero out at $98,000 or more. Thus, if you made less than $75,000, you should receive the full $1,200. If you made greater than $98,000, you will likely receive $0. If you made somewhere in between, you should receive a relief payment. =

What year’s tax return matters: 2018 or 2019 (or both)? The return that matters is the federal individual income tax return (Form 1040) that you filed most recently. Since the Treasury Department delayed the filing deadline for tax year 2019 returns, you may not have filed your 2019 return yet. If that is the case, the amount that matters is what is reflected on your 2018 return. If, however, you have filed your 2019 return, this is the applicable amount.

A very simplified EXAMPLE: Let’s say your AGI (adjusted gross income) was $60,000 in 2018. But it was $80,000 in 2019. You would get a higher amount on your relief check if you waited to file your 2019 federal tax return until after checks were released. In contrast, if you made $90,000 in 2018 but only $70,000 in 2019, your check would be higher if you went ahead and filed your 2019 tax return.

However, if your income decreases in 2020, you may see some benefit later. When you file your 2020 federal individual income tax return, you may receive the $1,200 (or some payment) as a refund if your 2020 income would have qualified you for a payment. (In tax terms, the relief checks are an advance of a refundable tax credit. In other words, the bill created a refundable tax credit and the IRS is paying out the amount of that tax credit to eligible taxpayers now.)

Question: Since this is an advance, will you have to repay the money next year?

No. This is an advance tax credit, meant to offset the amount you owe in 2020 federal income taxes. A tax credit is an amount of money that taxpayers can subtract from taxes owed to the federal government. Unlike tax deductions and tax exemptions, which reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.

Anything else important to know? Of course. First, these relief payments are not taxable, so they will not qualify toward your taxable income for your 2020 federal tax return. Second, even if you owe past taxes, you should still receive your check. But if you owe back child support and the amount has been reported to the federal government, your check could be reduced.

If you have other questions, the IRS has published FAQs that you may find helpful.

Individuals Owing Past Due Federal Taxes

IRS People First Initiative

On March 25, 2020, the IRS released its People First Initiative. Highlights of the initiative include, if:

- You owe back taxes:
  - And have an existing installment agreement with the IRS, you may suspend payments due between April 1 and July 15.
    - NOTE: the IRS will not default any installment agreements during this period for lack of payment; however, interest continues to accrue.
  - And you have a pending offer in compromise, you have until July 15 to gather and provide any additional information in support.

Then, liens and levies imposed by field revenue officers will be suspended from April 1 to July 15.
- The IRS is suspending all new certifications to the State Department during this period, but if your passport has already been certified due to “seriously delinquent” tax liability, it will likely remain so.

You can read more about this IRS Initiative here.

Need Tax Help – We Have Attorneys Available to Assist

The novel coronavirus outbreak is resulting in expansive legislative and administrative changes. New updates are emerging almost daily, and the lawyers at Dysart Willis Houchin & Hubbard are striving to keep you informed of these changes. We want to be sure that you and/or your business can take advantage of any tax incentives available to you and can help keep you in full compliance with your responsibilities under the Tax Code.