Initial US Federal and State Tax Relief Developments Relating to COVID-19

(updated as of March 22, 2020)

The US government has a history of providing relief to taxpayers in times of natural disaster or other crisis, such as the present national emergency as a result of COVID-19. We anticipate that various strategies to stabilize the markets and provide further relief to businesses and individuals will be proposed over the short-term and that some of this relief may be effected through Internal Revenue Service (the “IRS”) guidance and through tax legislation. In this Legal Update, we discuss the initial actions taken by the IRS and some responses from state taxing authorities.

The IRS has its own COVID-19 response webpage¹ and has taken initial steps to provide relief to taxpayers, starting with delaying “tax day” from April 15, 2020, to July 15, 2020, as discussed in pertinent part below. More IRS guidance is likely.

On March 18, 2020, the IRS released Notice 2020-17, which delayed the payment of certain US federal income tax and estimated taxes due on April 15, 2020 (subject to somewhat restrictive thresholds). The relief provided in Notice 2020-17 did not extend to tax return filing obligations and therefore was viewed as somewhat limited. In response, the IRS issued Notice 2020-18 on March 20, 2020,² which superseded Notice 2020-17. Notice 2020-18 postpones, without limitation, the due date for filing US federal income tax returns and making US federal income tax payments (including payments of tax on self-employment income) for the 2019 tax year due April 15, 2020, to July 15, 2020. These postponements are automatic so taxpayers do not need to file extensions. Taxpayers will now have additional time to file such returns and make such payments without accruing interest, penalties or additional tax for the failure to file or pay such taxes by April 15, 2020. (Interest, penalties and additions to tax with respect to such postponed federal income tax filings and payments will begin to accrue on July 16, 2020.) This relief is also available for federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for an impacted taxpayer’s 2020 taxable year.³

The extensions referenced above do not extend to any other types of US federal tax (e.g., US withholding tax) and do not apply to the filing of any federal information return. Further, this relief does not apply to any estimated tax payment, or any other federal tax return filing or payment, due on any date other than those due on April 15, 2020.

The IRS also issued Notice 2020-15,⁴ which provides that a high deductible health plan (“HDHP”) under Section 223(c)(2)(A) of the Internal Revenue Code of 1986, as amended, will not fail to be a HDHP by virtue of the plan providing health benefits associated with testing and treatment for COVID-19 without a deductible or with a deductible below the minimum.

State and Local Responses

In response to the ongoing COVID-19 developments, multiple state taxing authorities have granted extensions for various filing and payment deadlines and made guidance available on their websites. These extensions vary, but are typically for up to 90 days and vary by tax type. Some states have also announced that late filing and payment penalties, which would otherwise apply, will be waived. Below is a brief overview of some recent state guidance related to income, commercial activity and excise taxes:⁵

• Alabama: the Department of Revenue has announced that it plans to mirror any federal filing and payment extensions as appropriate.
• Arizona: the Department of Revenue has extended the filing and payment deadlines for income taxes to July 15, 2020. Late filing and payment penalties, as well as interest, will be waived.
• California: the Franchise Tax Board has extended the filing and payment deadlines for 2019 income tax returns and payments, 2020 1st and 2nd quarter estimated payments, 2020 LLC taxes and fees, and 2020 non-wage withholding payments to July 15, 2020. Late filing and payment penalties, as well as interest, will be waived.
• Colorado: Governor Polis has extended the filing and payment deadlines for income taxes to July 15, 2020. Late filing and payment penalties, as well as interest, will be waived.
• Connecticut: the Department of Revenue has extended filing deadlines by at least 30 days for certain annual tax returns due on or after March 15, 2020, and before June 1, 2020. Payment deadlines associated with these returns are also extended to June 15, 2020. The impacted returns include the 2019 pass-through entity tax return (extended to April 15, 2020), 2019 unrelated business tax return (extended to June 15, 2020) and 2019 corporate business tax return (extended to June 15, 2020).
• Indiana: Governor Holcomb has extended the filing and payment deadlines for income taxes to July 15, 2020. Returns due by May 15, 2020, are extended to August 17, 2020. Estimated payments are included in the extension.
• Iowa: the Department of Revenue has extended the filing and payment deadlines for income tax returns due on or after March 19, 2020, but before July 31, 2020, to July 31, 2020. The extension does not apply to estimated tax payments. No late filing and underpayment penalties will apply to taxpayers that comply with the extended deadlines. Any interest on unpaid taxes covered by the announcement shall be due beginning on August 1, 2020.
• Maryland: the Comptroller has announced that income taxpayers will have filing and payment extensions consistent with the IRS until July 15, 2020. No interest or penalties for late payments will be imposed if 2019 tax payments are made by this new deadline. Fiscal year filers with tax years ending January 1, 2020, through March 31, 2020, are also eligible for this extension.
• Minnesota: the Department of Revenue has announced that it will not be moving its income tax filing deadlines for now.
• New Jersey: the NJ Legislature has introduced AB 3841/SB 2300, which would automatically extend the time to file and pay taxes based on any federal extensions, but with a deadline no later than June 30, 2020. The legislation passed and is awaiting signature from Governor Murphy.
• New Mexico: the Taxation and Revenue Department extended the income tax filing and payment deadlines to July 15, 2020. Late filing and payment penalties will be waived, but interest will accrue on any unpaid balances beginning on April 15, 2020, and going forward.
• New York: Governor Cuomo has extended the filing and payment deadlines for income taxes to July 15, 2020.
• New York City: the Department of Finance has announced that it will grant automatic penalty waivers to taxpayers that request a waiver on a late-filed extension or return, or in a separate request, for business and excise taxes due between March 16, 2020, and April 25, 2020. Any interest must be paid on all tax payments received after the original due date.
• North Carolina: the Department of Revenue will waive late payment penalties for income tax due on April 15, 2020, if the tax is paid by July 15, 2020. The filing deadline has also been extended to July 15, 2020. Tax payments received after April 15, 2020, will be charged accruing interest over the period from April 15 until the date of payment.
• Oklahoma: the Tax Commission has extended the filing and payment deadlines for income taxes to July 15, 2020, with a similar deferment cap as that of the IRS. Late filing and payment penalties, as well as interest, will be waived.
• Oregon: the Department of Revenue will not assess underpayment penalties for taxpayers that made a good faith effort to estimate Commercial Activity Tax payments during the 1st quarter of 2020 for payments that are due by April 30, 2020.
• Rhode Island: the Division of Taxation plans to mirror the federal extensions.
• South Carolina: for tax returns and payments due between April 1, 2020, and June 1, 2020, the Department of Revenue has extended the due dates to June 1, 2020. Penalties and interest will also be waived if payments are received by June 1, 2020.
• Virginia: the Department of Taxation has extended the payment due date for income taxes to June 1, 2020. Late payment penalties will be waived, and estimated payments are included in the extension. Any interest will continue to accrue from the original due date of the payment.
• Washington: for excise tax returns, businesses can request a filing and payment extension of up to 60 days for monthly filers and 30 days for quarterly or annual filers.

We anticipate additional guidance being released in other states and localities over the next few weeks.

Looking Ahead

As discussed, more guidance from the IRS is likely on the way. Congress is also working to provide tax relief in response to the disruption caused by COVID-19. On March 18, 2020, the Families First Coronavirus Response Act (H.R. 6201) was signed into law.⁶ The new law provides limited payroll tax relief. On March 19, 2020, another stimulus bill was introduced in the Senate. This bill would provide business tax relief, including: (1) temporarily removing the taxable income limitation in order to permit net operating losses to fully offset income, (2) delaying the payment of estimated taxes for corporations, (3) modifying certain limitations on the deductibility of business interest, and (4) suspending certain aviation excise taxes. We will provide further updates as US tax relief develops.

Proposals and negotiations will occur rapidly. It is critical that impacted businesses consider how to best ensure that relief and stimulus proposals are appropriately designed to meet pressing needs. Please reach out to any of the contacts listed above to discuss how best to proceed.

 

¹ The IRS coronavirus tax relief webpage is available at https://www.irs.gov/coronavirus.

2 Notice 2020-18 is available at https://www.irs.gov/pub/irs-drop/n-20-18.pdf.

3 As of the date of publication, Congress is considering legislative changes to the tax filing and payment due dates relating to the 2019 tax year. Accordingly, these dates may be subject to further change.

4 Notice 2020-15 is available at https://www.irs.gov/pub/irs-drop/n-20-15.pdf. For a more detailed discussion of Notice 2020-15, see our recent post on our Benefits & Compensation Blog, available at https://www.usbenefits.law/2020/03/covid-19-coverage-under-high-deductible-health-plans/.

5 The following survey is current through March 20, 2020.

6 For a discussion of the Families First Coronavirus Response Act, please see our Legal Update, available at https://www.mayerbrown.com/en/perspectives-events/publications/2020/03/us-employers-should-pay-close-attention-to-new-legislation-requiring-paid-leave-related-to-the-covid-19-pandemic. Mayer Brown is monitoring legal developments in other industries as well. Please visit our COVID-19 Portal (https://covid19.mayerbrown.com/) to view our other updates and insights.