The Coronavirus Aid, Relief and Economic Security (CARES) Act addresses the economic impacts of the COVID-19 outbreak. It authorizes emergency loans to distressed businesses, payouts of tax rebates to individuals and their children and provides paid family leave and paid sick leave benefits to employees by offsetting tax credits to employers. The bill provides for stimulus to the U.S. economy through tax provisions, health care funding, promotion of drug research and testing and provides provisions suspending federal student loan payments.
Taxes are addressed in a variety of ways throughout the bill, but the IRS has not released any specific guidance related to tax information reporting for these details. At this time, the IRS has only released limited guidance related to the payroll tax deferrals and offsets in the bill affecting Form 941 processing. The following are the top ways we believe Coronavirus and the CARES act are affecting your tax reporting obligations.
1. The IRS extended the filing due date for Forms 5498, 5498-QA, 5498-ESA and 5498-SA, which may conflict with IRA contributions. With Notice 2020-23, the IRS extended the deadline for custodians to issue the Form 5498 statement to recipients and to file with the IRS until July 15th. However, retirement plan owners also have until July 15th to make contributions to the IRA that can be attributed to 2019. So, if custodians issue the 5498 the same day, they can’t account for all of the contributions they receive. The IRS typically provides a 45-day gap between those dates. As a result, members of the reporting industry have requested a new 5498 filing due date of August 1st.
2. Coronavirus-related paid family leave (PFL) and sick leave (SL) payouts will likely cause a change on the W-2. PFL is not currently reported at the Federal level. And state PFL payments utilize the “other” box 14 of Form W-2 and a specific code. If the IRS sees PFL as a long-term deduction for the taxpayer, there may be a new box added to the form. Or, the IRS could use the box 14 and just add another code to delineate the Coronavirus-related PFL versus other PFL and other amounts reported in that box.
3. Payroll tax offsets for Coronavirus-related PFL and SL will impact Form 941. In order to pay for the Coronavirus-related leave, employers are to reduce their payroll tax liabilities by the applicable tax credits of the Coronavirus-related PFL and SL paid out. The IRS issued Notice 2020-21 to discuss how to manage this process. In short, it is an offset taken against the 941 payroll tax liability for the tax credit amounts applicable for the different PFL and SL scenarios.
4. The employer’s share of payroll taxes have been deferred until December 31, 2020, which impacts Form 941. All employers are entitled to this deferral. They are required to pay 50 percent of the amounts deferred back to the IRS by December 31, 2021 and the remaining 50 percent by December 31 2022. Notice 2020-22 states that the employer will offset the 941 payroll tax liabilities reported by those amounts through the end of the year.
5. Loans from IRAs for COVID-19 are tax deferred, which may impact Forms 1099-R and 5498. Retirement plan owners can take a distribution of up to $100k to cover Coronavirus-related expenses. However, this will impact your ability to track loan amounts distributed. And it will impact the amount of Forms 1099-R you issue. What makes this more complicated is that the IRA owner can elect to be taxed for the distribution in one of the following two ways, which you will have to track and report accordingly:
The owner pays the tax over 3-years. The IRS will likely add new boxes to the 1099-R form to report what was paid in one year versus what was taxable for that year. The Service will also likely create a new distribution code to indicate a Coronavirus-related distribution.
The distribution is treated like a loan and paid back. Distribution codes on the 1099-R will likely be updated to indicate a Coronavirus-related loan was taken from the plan. Codes will likely be added to report contributions received as paybacks of the COVID-19 loans for Form 5498 reporting.
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