Axley & Rode, LLP

The economic impact of the novel coronavirus (COVID-19) is unprecedented and many taxpayers with student loans have been hard hit. The Coronavirus Aid, Relief and Economic Security (CARES) Act contains some assistance to borrowers with federal student loans. Notably, federal loans were automatically placed in an administrative forbearance, which allows borrowers to temporarily stop making monthly payments. This payment suspension is scheduled to last until September 30, 2020. Tax deduction rules Despite the suspension, borrowers can still make payments if they choose. And borrowers in good standing made payments earlier in the year and will likely make them later in 2020. So can you deduct the student loan interest on your tax return? The answer is yes, depending on your income and subject to certain limits. The maximum amount of student loan interest you can deduct each year is $2,500. The deduction is phased out if your adjusted gross income (AGI) exceeds certain levels. For 2020, th

The IRS recently increased the carryover limit for Health Flexible Spending Arrangements (FSAs) to an amount indexed for inflation. The agency also clarified the ability of a health plan to reimburse individual insurance policy premium expenses incurred before the beginning of the plan year for coverage provided during the plan year. Boosted maximum Under IRS Notice 2020-33, the maximum $500 carryover amount for a plan year has been increased to an amount equal to 20% of the maximum salary reduction contribution under Internal Revenue Code Section 125(i) for that plan year. For a plan year starting in 2020, the maximum unused amount that may be carried over to the following plan year beginning in 2021 is $550 (20% of $2,750). Future increases will be in $10 multiples. Pertinent deadlines Because Sec. 125 cafeteria plans must be expressed in writing, plans that offer Health FSAs may not use the increased carryover amount for a plan year that begins in 2020 (or a later year) unless they:

The IRS recently released the 2021 inflation-adjusted amounts for Health Savings Accounts (HSAs).  HSA basics An HSA is a trust created or organized exclusively for the purpose of paying the “qualified medical expenses” of an “account beneficiary.” An HSA can only be established for the benefit of an “eligible individual” who is covered under a “high deductible health plan.” In addition, a participant can’t be enrolled in Medicare or have other health coverage (exceptions include dental, vision, long-term care, accident and specific disease insurance). In general, a high deductible health plan (HDHP) is a plan that has an annual deductible that isn’t less than $1,000 for self-only coverage and $2,000 for family coverage. In addition, the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits (but not for premiums) cannot exceed $5,000 for self-only coverage, and $10,000 for family coverage. Within specified dollar li

The IRS recently issued frequently asked questions (FAQs) regarding retirement plan distribution and loan relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act. This relief applies to qualified individuals affected by the novel coronavirus (COVID-19) pandemic. It expanded distribution options and favorable tax treatment, increased plan loan limits and delayed repayment of outstanding plan loans. The FAQs explain that the IRS plans to release further guidance under Internal Revenue Code Section 2202 “in the near future.” It will apply principles originally articulated in Notice 2005-92, which interpreted distribution and loan relief enacted in response to Hurricane Katrina. Meanwhile, here are some highlights of the CARES Act FAQs: Optional relief. Employers may choose whether to amend their plans to provide the Sec. 2202 distribution and loan relief, which includes allowing qualified individuals to delay repayment of outstanding plan loans for up to one year. They

Nearly everyone has heard about the Economic Impact Payments (EIPs) that the federal government is sending to help mitigate the effects of the coronavirus (COVID-19) pandemic. The IRS reports that in the first four weeks of the program, 130 million individuals received payments worth more than $200 billion. However, some people are still waiting for a payment. And others received an EIP but it was less than what they were expecting. Here are some answers why this might have happened. Basic amounts If you’re under a certain adjusted gross income (AGI) threshold, you’re generally eligible for the full $1,200 ($2,400 for married couples filing jointly). In addition, if you have a “qualifying child,” you’re eligible for an additional $500. Here are some of the reasons why you may receive less: Your child isn’t eligible. Only children eligible for the Child Tax Credit qualify for the additional $500 per child. That means you must generally be related to the child, live with them more than

The U.S. Department of Labor’s (DOL’s) Wage and Hour Division recently posted additional guidance regarding paid sick and emergency childcare leave under the Families First Coronavirus Response Act (FFCRA). Much of the guidance offers details and clarifications on the calculation of paid leave, including: How to calculate an employee’s regular rate of compensation, Whether the regular rate must be recalculated each time leave restarts, and The number of hours due under each leave type in different situations. But the guidance also addresses how an employer’s other leave benefits — including vacation and PTO benefits — interact with FFCRA paid leave, clarifying lingering questions about the concurrent use of leave. Concurrent leave The guidance explains that an employer may not require that employer-provided paid leave run concurrently with (in other words, cover the same hours as) paid FFCRA sick leave. However, paid leave available under the employer’s leave policy that allows an empl

Do you want to save more for retirement on a tax-favored basis? If so, and if you qualify, you can make a deductible traditional IRA contribution for the 2019 tax year between now and the extended tax filing deadline and claim the write-off on your 2019 return. Or you can contribute to a Roth IRA and avoid paying taxes on future withdrawals. You can potentially make a contribution of up to $6,000 (or $7,000 if you were age 50 or older as of December 31, 2019). If you’re married, your spouse can potentially do the same, thereby doubling your tax benefits. The deadline for 2019 traditional and Roth contributions for most taxpayers would have been April 15, 2020. However, because of the novel coronavirus (COVID-19) pandemic, the IRS extended the deadline to file 2019 tax returns and make 2019 IRA contributions until July 15, 2020. Of course, there are some ground rules. You must have enough 2019 earned income (from jobs, self-employment, etc.) to equal or exceed your IRA contributions for

To address unanticipated health care expenses due to the COVID-19 pandemic, the IRS has issued guidance to increase flexibility in employees’ cafeteria plans. The IRS has added to the situations in which a cafeteria plan may allow employees to make mid-year elections, allowed more flexibility with respect to health flexible spending accounts (FSAs) and dependent care assistance programs under a cafeteria plan, and provided several rules with respect to high deductible health plans (HDHPs). Specifically, regarding health FSAs, the IRS increased for inflation the $500 permitted carryover amount to $550. For more information about Notice 2020-29:  https://bit.ly/2zyon3q

In light of the novel coronavirus (COVID-19) pandemic, many businesses are interested in donating to charity. In order to incentivize charitable giving, the Coronavirus Aid, Relief and Economic Security (CARES) Act made some liberalizations to the rules governing charitable deductions. Here are two changes that affect businesses: The limit on charitable deductions for corporations has increased.   Before the CARES Act, the total charitable deduction that a corporation could generally claim for the year couldn’t exceed 10% of corporate taxable income (as determined with several modifications for these purposes). Contributions in excess of the 10% limit are carried forward and may be used during the next five years (subject to the 10%-of-taxable-income limitation each year). What changed? Under the CARES Act, the limitation on charitable deductions for corporations (generally 10% of modified taxable income) doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s

Does someone who died qualify for an Economic Impact Payment? The IRS says the answer is “no.” In new FAQs on its website, the IRS explains that the entire EIP should be returned unless it was made to joint filers and there’s a surviving spouse. In that case, only the deceased spouse’s portion of the EIP should be returned. This amount is $1,200, unless the couple’s adjusted gross income (AGI) exceeded $150,000. In addition, if a joint-filing couple receives in excess of $2,400 because they receive $500 for each of their qualifying children, the excess doesn’t need to be returned. Contact us with questions.

The coronavirus (COVID-19) pandemic has affected many Americans’ finances. Here are some answers to questions you may have right now. My employer closed the office and I’m working from home. Can I deduct any of the related expenses? Unfortunately, no. If you’re an employee who telecommutes, there are strict rules that govern whether you can deduct home office expenses. For 2018–2025 employee home office expenses aren’t deductible. (Starting in 2026, an employee may deduct home office expenses, within limits, if the office is for the convenience of his or her employer and certain requirements are met.) Be aware that these are the rules for employees. Business owners who work from home may qualify for home office deductions. My son was laid off from his job and is receiving unemployment benefits. Are they taxable? Yes. Unemployment compensation is taxable for federal tax purposes. This includes your son’s state unemployment benefits plus the temporary $600 per week from the federal gove

The IRS has added FAQs on new retirement plan distribution and loan rule changes. The FAQs answer questions about withdrawals under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In general, the law provides for expanded distribution options and favorable tax treatment for up to $100,000 of COVID-19-related distributions from eligible retirement plans to qualified individuals, as well as special rollover rules for such distributions. One question asks: When are taxes due on distributions? The answer is ratably over three years. Another FAQ explains that it’s optional for employers to adopt the distribution and loan rules. Read the FAQs: https://bit.ly/3dhQcLO

Still waiting? If you’re eligible for an Economic Impact Payment as part of the Coronavirus Aid, Relief and Economic Act and you haven’t received it, you may have tried to track it using the IRS “Get My Payment” tool. If you got a “Status Not Available” message, it may be that the IRS doesn’t have your current bank information. Have you changed your bank account since filing your taxes? The IRS says the web tool can’t be used to add or change this information, as this poses a significant fraud risk. If the IRS sends a check to a closed or invalid account, the IRS says a deposit will be rejected, and a paper check will be mailed. Here’s more:  http://bit.ly/3bTuEVu

The Paycheck Protection Program (PPP) is available to many U.S. small businesses affected by the novel coronavirus (COVID-19). Businesses can qualify for 100% loan forgiveness for amounts used for payroll costs, mortgage interest, rent and utility payments during the eight weeks after receipt of the loan, as long as no more than 25% of the loan proceeds are used for nonpayroll costs. In Notice 2020-32, the IRS has clarified that deductions for income tax purposes aren’t allowed for expenses that are otherwise deductible if the payment of the expense results in forgiveness of a covered loan. The IRS also stated that the forgiven loan funds aren’t included in a business’s gross income.

The IRS has clarified that Payroll Protection Program (PPP) participants may be eligible for the employee retention tax credit. The PPP makes loans to qualified businesses that are affected by the novel coronavirus (COVID-19) crisis. The loans are forgiven if certain requirements are met. In addition, the CARES Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis On its website, the IRS has added an FAQ explaining that that employers that repay their PPP loans by May 7, 2020 can be eligible for the employee retention credit. To learn more:  https://bit.ly/3fs7c43

The U.S. Department of Labor’s (DOL’s) Wage and Hour Division recently posted additional guidance regarding paid sick and emergency childcare leave under the Families First Coronavirus Response Act (FFCRA). Much of the guidance offers details and clarifications on the calculation of paid leave, including: How to calculate an employee’s regular rate of compensation, Whether the regular rate must be recalculated each time leave restarts, and The number of hours due under each leave type in different situations. But the guidance also addresses how an employer’s other leave benefits — including vacation and PTO benefits — interact with FFCRA paid leave, clarifying lingering questions about the concurrent use of leave. Concurrent leave The guidance explains that an employer may not require that employer-provided paid leave run concurrently with (in other words, cover the same hours as) paid FFCRA sick leave. However, paid leave available under the employer’s leave policy that allows an empl

Employers have many questions about the new Employee Retention tax credit. To answer them, the IRS has issued a series of FAQs about the credit, which is part of the Coronavirus Aid, Relief, and Economic Security Act. The refundable credit can be applied against payroll tax and is available to employers whose operations were fully or partly suspended due to a coronavirus (COVID-19) government shutdown order, or because their gross receipts fell more than 50% compared to the same quarter in 2019. The credit equals 50% of up to $10,000 in compensation (including health care benefits) paid to an eligible employee from March 13 through Dec. 31, 2020. Read the FAQs here:  https://bit.ly/2z5dtBJ

The coronavirus (COVID-19) pandemic has caused the value of some retirement accounts to decrease because of the stock market downturn. But if you have a traditional IRA, this downturn may provide a valuable opportunity: It may allow you to convert your traditional IRA to a Roth IRA at a lower tax cost. Here’s what makes a traditional IRA different from a Roth IRA Traditional IRA. Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you (or your spouse) participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax deferred. On the downside, you generally must pay income tax on withdrawals. In addition, you’ll face a penalty if you withdraw funds before age 59½ — unless you qualify for a handful of exceptions — and you’ll face an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 72. Roth IRA. Roth IRA contributions are never deductible. But wit

The Coronavirus Aid, Relief, and Economic Security (CARES) Act eliminates some of the tax-revenue-generating provisions included in a previous tax law. Here’s a look at how the rules for claiming certain tax losses have been modified to provide businesses with relief from the novel coronavirus (COVID-19) crisis. NOL deductions Basically, you may be able to benefit by carrying a net operating loss (NOL) into a different year — a year in which you have taxable income — and taking a deduction for it against that year’s income. The CARES Act includes favorable changes to the rules for deducting NOLs. First, it permanently eases the taxable income limitation on deductions. Under an unfavorable provision included in the Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 and later and carried over to a later tax year couldn’t offset more than 80% of the taxable income for the carryover year (the later tax year), calculated before the NOL deduction. As explained below

As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake. The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one. If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax. Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well. These obligations don’t apply if a worker is an independent contractor. In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more). No uniform definition Who is an “

The IRS has updated a series of FAQs related to the federal income tax return filing and payment deadlines in response to the coronavirus (COVID-19) pandemic. These FAQs update information about expanded taxpayer relief measures provided since the original FAQs were issued on March 23, 2020. Specifically, a new FAQ asks the question whether a taxpayer must be diagnosed with COVID-19 or otherwise quarantined to qualify for IRS tax relief. The answer is, no. Another FAQ discusses the correct due date for filing a U.S. Tax Court petition after a taxpayer received a Notice of Deficiency dated in March. The postponed deadline is now July 15, 2020. Read the FAQs here:  http://bit.ly/3aJgKUB