Covid-19

IRS: New law provides relief for eligible taxpayers who need funds from IRAs and other retirement plans

WASHINGTON − The Internal Revenue Service provided a reminder today that the Coronavirus Aid, Relief, and Economic Security (CARES) Act can help eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRAs and allowing certain retirement plans to offer expanded loan options.

Can I get money from my retirement account now?

Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.

These coronavirus-related withdrawals:

• May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option.
• Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59½,
• Are not subject to mandatory tax withholding, and
• May be repaid to an IRA or workplace retirement plan within three years.

Can I take out a loan?

Individuals eligible to take coronavirus-related withdrawals may also, until Sept. 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA.

For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before Jan. 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.

Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

Who is eligible?

To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

• The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);
• The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or
• The individual experiences adverse financial consequences as a result of:

o The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;
o The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or
o Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

 

Major changes to retirement plans due to COVID-19

Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between Jan. 1 and Dec. 30, 2020.

These coronavirus-related distributions aren’t subject to the 10% additional tax that generally applies to distributions made before reaching age 59 and a half, but they are still subject to regular tax. Taxpayers can include coronavirus-related distributions as income on tax returns over a three-year period. They must repay the distribution to a plan or IRA within three years.

Some plans may have relaxed rules on plan loan amounts and repayment terms. The limit on loans made between March 27 and Sept. 22, 2020 is raised to $100,000. Plans may suspend loan repayments due between March 27 and Dec. 31, 2020.

Qualifications for relief
The law defines a qualifying person as someone who:

• Has tested positive and been diagnosed with COVID-19
• Has a dependent or spouse who has tested positive and been diagnosed with COVID-19
Experiences financial hardship due to them, their spouse or a member of their household:
o Being quarantined, furloughed or laid off or having reduced work hours
o Being unable to work due to lack of childcare
o Closing or reducing hours of a business that they own or operate
o Having pay or self-employment income reduced
o Having a job offer rescinded or start date for a job delayed

Employers can choose whether to implement these coronavirus-related distribution and loan rules. Qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren’t changed. Administrators can rely on an individual’s certification that they’re a qualified person.

Required minimum distributions
People who already took a required minimum distribution from certain retirement accounts in 2020 can now roll those funds back into a retirement account.

The 60-day rollover period has been extended to Aug. 31, 2020.

Under the relief, taxpayers with required minimum distributions from certain retirement plans can skip them this year. Distributions that can be skipped were due in 2020 from a defined-contribution retirement plan. These include a 401(k) or 403(b) plan, as well as an IRA. Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020. This waiver does not apply to defined-benefit plans.

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IRS is sending letters to those experiencing a delay with advance payment of employer credits

WASHINGTON – The Internal Revenue Service has started sending letters to taxpayers who have experienced a delay in the processing of their Form 7200, Advance Payment of Employer Credits Due To COVID-19.

A taxpayer will receive letter 6312 if the IRS either rejected Form 7200 or made a change to the requested amount of advance payment due to a computation error.

The letter will explain the reason for the rejection or, if the amount is adjusted, the new payment amount will be listed on the letter.

A taxpayer will receive letter 6313 if the IRS needs written verification from a taxpayer that the address listed on their Form 7200 is the current mailing address for their business. The IRS will not process Form 7200 or change the last known address until the taxpayer provides it.

For more information on the employer credits, see Employer Tax Credits.

IRS payment options

Taxpayers have a variety of options to consider when paying federal taxes. This year, in response to the COVID-19 pandemic, the filing deadline and tax payment due date was postponed from April 15 to July 15, 2020.

A list of forms due July 15 is on the Coronavirus Tax Relief: Filing and Payment Deadlines page. Electronic payment options are the optimal way to make a tax payment. All payment options are available at IRS.gov/payments.

The IRS reminds taxpayers filing Form 1040 series returns that they must file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by July 15 to obtain the automatic extension to Oct. 15. The extension provides additional time to file the tax return – it is not an extension to pay any taxes due.

Those who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020.One for their 2019 income tax liability and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment.

Automatic extension of time to file

Taxpayers who need more time to prepare and file their federal tax return can apply for an extension of time to file until Oct. 15. To get an extension, taxpayers must estimate their tax liability on the extension form and pay any amount due.

Individual taxpayers have several easy ways to file Form 4868 by the July 15 deadline. Tax software providers have an electronic version available. In addition, all taxpayers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension.

State deadlines may differ

The IRS also reminds taxpayers to check their state filing and payment deadlines, which may differ from the federal July 15 deadline. A list of state tax division websites is available through the Federation of Tax Administrators.

Paying electronically:

• Individuals – Taxpayers can use Direct Pay for two payments each day. Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. They will receive an email confirmation of their payments.
• Businesses – For businesses or those making large payments, the best payment option is the Electronic Federal Tax Payment System, which allows up to five payments per day. Enrollment is required. Taxpayers can schedule payments up to 365 days in advance and opt in to receive email notifications about their payments.

Additional electronic payment options:

• Taxpayers can pay when they file electronically using tax software online. If using a tax preparer, ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
• Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. Processing fees apply. No part of the card service fee goes to the IRS.
• The IRS2Go app provides mobile-friendly payment options, including Direct Pay and Payment Provider payments on mobile devices

Paying by check, money order or cashier’s check:

• 2019 Tax Liability – If paying a 2019 income tax liability without an accompanying 2019 tax return, taxpayers paying by check, money order or cashier’s check should include Form 1040-V, Payment Voucher with the payment. Mail the payment to the correct address by state or by form. Do not send cash through the mail. Indicate on the check memo line that this is a 2019 income tax payment.
• For those paying when filing their 2019 income tax return, do not staple or paperclip the payment to the return. For more information, go to Pay by Check or Money Order on IRS.gov.
• 2020 Estimated Tax Payments – Taxpayers making their 2020 estimated tax payment by check, money order or cashier’s check should include the appropriate Form 1040 ES payment voucher. Indicate on the check memo line that this is a 2020 estimated tax payment.

Paying by cash:

• Individuals and businesses, preferring to pay in cash, can do so at a participating retail store. Select the cash option in the “Other Ways You Can Pay” section and follow the instructions. There is a $1,000 payment limit per day and a $3.99 fee per payment.

Payment options for those who cannot pay in full:

For taxpayers who cannot pay in full, the IRS encourages them to pay what they can and consider a variety of payment options available for the remaining balance. Act as quickly as possible. Tax bills accumulate more interest and fees the longer they remain unpaid.

Most taxpayers have the following payment options:

• Online Payment Agreement — These are available for individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in combined payroll tax, penalties and interest and have filed all tax returns. Most taxpayers qualify for this option, and an Online Payment Agreement can usually be set up in a matter of minutes on IRS.gov/OPA. Online Payment Agreements are available Monday – Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time. Certain fees may apply.
• Installment Agreement — Taxpayers who do not qualify to use the online payment agreement option, or choose not to use it, can also apply for a payment plan by phone, or by mail by submitting Form 9465, Installment Agreement Request. Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Certain fees may apply.
• Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Penalties and interest continue to accrue until the full amount is paid.
• Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.

Though interest and late-payment penalties continue to accrue on any unpaid taxes after July 15, the failure to pay tax penalty rate is cut in half while an installment agreement is in effect. The usual penalty rate of 0.5% per month is reduced to 0.25%. For the calendar quarter beginning July 1, 2020, the interest rate for underpayment is 3%.

In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.

Reviewing federal tax information online

Individual taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, access their tax records online, review their payment history and view key tax return information for the most recent tax return as originally filed.

Check tax withholding

The IRS urges all taxpayers to check their withholding for 2020, especially those who made withholding adjustments in 2019 or had a major life change. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction as well as two-wage-earner households, employees with non-wage sources of income, and those with complex tax situations.

To help taxpayers allocate the appropriate withholding to their paychecks throughout the year in 2020, an updated version of the agency’s online Tax Withholding Estimator is now available on IRS.gov. It’s never too early to check withholding.

Online tools

The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov, especially with extremely limited phone services and face-to-face service due to COVID 19.

 

Avoiding Economic Impact Payment Scams

Here is a video tax tip from the IRS:

Avoiding Economic Impact Payment Scams English

Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.

• www.youtube.com/irsvideos
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NATP

National Association of Tax Professionals