Tax Relief Fund – The Ultimate Guide
In most years, a tax relief fund is related to individuals or businesses receiving money back from their own tax filings if they meet various criteria. However, 2020 is different due to COVID-19. Thanks to the pandemic, the concept of a tax relief fund has changed.
While this is welcome news, it does complicate matters. New rescue and stimulus packages have been introduced to seek to help businesses and individuals. The only difficulty is in knowing which aspects of the relief fund apply to you, which is why a summary is included below.
The CARES Act (For Coronavirus / COVID-19 Relief)
Right now, we are talking about something called the CARES Act or, to give it the full name, the Coronavirus Aid, Relief and Economic Security Act. This fund is capable of providing individuals and businesses with some welcome news regarding their tax, and it has been funded to the tune of $2.2 trillion.
While this sounds like a huge sum of money, it’s worth noting that this also comes on top of the Families First Coronavirus Response Act along with the IRS offering extensions to filings and payments.
What this all amounts to is a substantial package designed to alleviate some of the stress associated with making tax payments during these tough times. In brief, various acts and changes to the laws for the duration of this exceptional year are something to be aware of. But let’s look at things more closely.
First, we can quickly address the extension idea. As an individual, you can seek an extension for making payment which will move the date from April 15 to July 15. This is the same for corporations, estates, and trusts.
Also, it’s worth noting there are no penalties if you seek this deferral.
An extension has also been applied to those individuals and businesses who should file their returns by April 15. This too has been extended to July 15 with no penalties. Also, there’s no need to submit a request for an extension.
Employee Retention Tax Credit
Another part of the tax relief fund focuses on the employee retention tax credit. This allows an employer of any size to receive some relief after their business and revenue have been negatively affected by COVID-19.
The idea behind this part of the fund is to remove some of the economic burdens of keeping staff on the payroll when income has been hit due to the pandemic. This results in the employer receiving up to $5,000 tax relief for each employee. However, eligibility depends on whether the business in question has already received help from other stimulus programs in place.
How Tax Relief Works
This relief will help save jobs as well as provide economic help for businesses, but how does it work? Well, you should start by contacting your tax advisor as they can guide you through each part. Aside from that, this is what you should know.
Thanks to this fund, an employer can keep a portion of the tax that they remove from the paycheck for each employee. Normally, the tax must be sent to the IRS, but this fund changes things.
Now, an employer can receive a ‘refund’ of 50% up to qualifying wages of $10,000. In other words, that’s where the $5,000 figure comes into fruition. Remember this applies to each employee in a business even if only one or two are on the payroll.
It’s important to include that this tax credit applies to wages paid from March 13 to December 31. Additional information as to what is meant by the term ‘qualified wages’ can be found on the IRS website. Alternatively, your tax advisor can clarify your own position.
Payroll Tax Deferral Relief
The CARES Act also mentions payroll tax deferral relief, and this also applies to businesses hit by COVID-19 restrictions or a downturn in revenue. In this instance, it refers to the ability to defer 6.2% of Social Security tax payments for the employer portion on payments made during key dates in 2020.
This relief only applies to the first $137,700 of their wages. Upon completion of this deferral period, a business must then pay this percentage, and they can do so in two installments.
According to the IRS, the first installment must be paid by 12/31/21 while the second installment is by 12/31/22. The concept here is to remove some pressure on businesses to pay everything back in one lump sum.
Self-Employed Tax Relief Fund
If you are self-employed, then you too can take advantage of this relief fund. The difference is it relates to the 12.4% Social Security tax component as opposed to the 6.2% paid by employers. Aside from that difference, the tax deferred must be paid in two installments with the same dates as mentioned above.
Borrowing From Your IRA
While most tax relief funds are related to businesses and employers, one aspect of the fund relates to the ability to borrow from your IRA. If you own an IRA and have been affected by COVID-19, then you will qualify for a fund that allows you to borrow up to $100,000 from your IRA.
Of course, there are some provisions to be aware of.
First, the money you ‘borrow’ must be repaid into your IRA within three years. If you do this, then you will avoid having to pay any Federal tax on that money. Also, there are no stipulations as to what you can then use the money for.
With this part of the tax relief fund, the ‘relief’ is due to not being penalized for using part of your IRA to help you through a tough time from a financial point of view. You can pay the money back in any amount you wish as long as the exact amount is replaced before the three-year limit is reached.
2020 has changed the concept of tax relief. New funds and ways in which individuals can defer payments or receive money back from their tax payments have all taken the impact of COVID-19 into consideration. If you are unsure as to which parts apply to you, then consult with your tax specialist as soon as possible.
Other Factors To Consider (For Tax Relief Funds)
No one saw COVID-19 (or coronavirus, if you prefer that name) coming. The federal government wasn’t even prepared – and neither was the IRS.
The IRS was lax about the due date for taxes this past year, and there was at least one widespread financial relief program due to the coronavirus pandemic. Some homeowners even got property tax relief this past year – and there were even other exemptions, as well.
Real estate does have different tax bills and rules than regular tax payers face – and the property tax relief fund is one key difference. However, there are other tax breaks for companies – like those surrounding business taxes.
In each fiscal year, businesses will pay an employment tax, though they also can qualify for an employee retention credit. Income tax payments must be made by every business in each tax year, as well as by individual taxpayers.
The Bottom Line On Tax Relief Funds
If you do not pay your taxes, you will face a tax liability. This carries with it tax penalties, no matter what tax cuts or tax provisions may have been passed that year.
Nonprofits have different rules around taxes, and C corporations also have some unique differences in tax laws. If you pay more taxes than you owe from the prior year, you will likely see a tax reimbursement.
Disasters like COVID-19 (also known as the coronavirus) impact our lives in numerous ways. While many don’t immediately link COVID and tax relief, the truth is they are intertwined.
If you have normal circumstances, the federal government (and even local government) are unlikely to give you any sort of tax breaks. But when taxpayers are impacted nationwide by a situation like coronavirus – the government must help out the average citizen.
While we have provided many important elements of the tax relief fund – head to IRS.gov to get the latest (and most definitive) FAQs answered. You may need to file a waiver to get the most tax relief, for example, and they will also be able to answer any question about complex issues (like carrybacks on NOLs).
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