Our current COVID-19 environment has led to the enactment of tax-related benefits at both the state and federal levels; however, the specifics of those benefits have our office wondering how they will be rolled out over time. We reached out to one of our trusted Tax Professionals, Thomas E. Pierce, CPA with ORBA with our questions and he provided some much needed guidance and explanations. Although the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) contains additional tax relief not mentioned in this article, we limited our focus to the details surrounding the tax payment program.

1. Can you break down the tax filing extensions that have been extended by the IRS for 2019 (is it for just personal returns or for all types of returns)?

In response to the COVID-19 outbreak, the IRS has automatically extended the filing deadline to July 15, 2020 for all individuals, trusts and corporations whose typical filing deadline is April 15, 2020. All other entities will have to continue to file for an extension if they cannot complete their returns timely. This includes gift tax returns whose deadline is April 15, 2020.

2. Has the state of Illinois also allowed state returns to be extended for 2019?

Illinois was late to the party, but did eventually grant the same automatic July 15th extension that the IRS has provided. Almost all states have also fallen in-line with the IRS extension, however there are a number of states who have released their own filing deadline.

3. What tax payments related to 2019 tax returns have been extended and through when?

For all of the entities that were granted an automatic filing extension mentioned above, the IRS has granted an automatic extension of payment to July 15, 2020. While Illinois has also granted an extension of the payment deadline to July 15, 2020, there are a couple states who have not extended the payment deadline but are willing to waive any penalties (but not interest) associated with paying late.

4. Are estimated tax payments for 2020 extended or delayed and if so, for which quarters?

This is where things get interesting. The IRS extended the first quarter 2020 estimated tax payment to July 15, 2020 but did not extend the second quarter 2020 estimate. That means that your first quarter 2020 estimate is due July 15 while you second quarter is actually due June 15th. This not only creates an awkward timing issue but can also result in a large cash requirement for those who pay quarterly estimates.

The states are all over the place in terms of 2020 estimated tax payment deadlines. Illinois is one of the states who have NOT extended their first quarter 2020 estimated tax deadline. Therefore, the first quarter 2020 estimated tax payment is still due April 15, 2020. Recognizing this could be problematic for certain taxpayers, Illinois did come out with a couple of other ways to calculate your 2020 estimates. Illinois has stated that you will avoid any underpayment penalties if you pay in 100 percent of your 2020, 2019 or 2018 tax liabilities evenly across the 4 estimated payments. The big change is allowing the use of your 2018 tax liability which is not typically allowed.

5. With respect to the stimulus checks that are being generated:

a. What are the amounts of the payments and what are the limits for obtaining these checks? Is there a phase out of the benefit or just caps on income that totally eliminate the benefit at a certain level of income?

Individuals whose adjusted gross income (AGI) falls under the following thresholds, will receive stimulus checks totaling $1,200 per person ($2,400 for married couples) along with up to $500 for each qualify child under the age of 17. Individuals filing as single will receive stimulus checks as long as their AGI is under $75,000 and will receive a reduced amount up until their AGI reached $99,000 (reduced by $5 for every $100 over the limit). Married couples will receive the checks as long as their AGI is under $150,000 and will be fully phased out once they reach $198,000. Head of household filers AGI limit starts at $112,500 and will be fully phased out at $136,500. The $500 amounts are also subject to the AGI phase outs.

b. For divorced couples, who gets the stimulus checks for the kids?

There hasn’t been much guidance on this but our assumption is that whoever claimed the children on the most recently filed tax return, will be given the $500 for the qualifying child.

c. How is the IRS getting this money to the taxpayers (checks, direct deposit, etc)?

The stimulus checks will be sent out in waves starting in the next couple of weeks and could extend out over several months. Taxpayers who have had overpayments directly deposited into their bank accounts in 2019 or 2018 will receive their stimulus checks deposited directly into those same accounts.

The IRS will automatically send out checks to social security recipients using information provided by the Social Security Administration. These individuals do not need to file a tax return if they do not meet the typical filing requirements. These individuals will receive their checks based on the same way they receive their social security which is either through direct deposit or through the mail.

Everyone else will receive their checks in the mail. The checks will be sent out at a rate of $5 million per week and will be distributed to individuals with the lowest AGI first.

d. Is there any way to alter the way the IRS is intending to send the stimulus payment?

The IRS is planning on developing a web-based portal which should allow individuals to provide their banking information which would allow for quicker distribution of funds. As of this this writing, there’s not a lot of details on this.

e. For couples who filed jointly for 2018, were divorced in 2019, and haven’t yet filed their separate returns for 2019, will the IRS deposit both parties’ payments and the children’s payments into the account used for the 2018 taxes? If so, how can that be avoided?

Our assumption is yes, they will use the 2018 return and deposit the entire amount into the same account used in 2018. We are hoping they provide more clarification for these types of situations and hopefully the portal mentioned above will allow for more flexibility.

6. Is there any other legislation that you know of that may be coming at the state, county ,or federal level that involves any additional tax relief?

In addition to all of the other benefits that were released as part of Phase 3 of the stimulus package, there is talk of a 4th Phase which is meant to address immediate needs. Everything we are hearing is speculation but it sounds like the government is aiming for additional funds to help states, cities, small businesses, unemployment and potentially another round of cash payments for individuals.

This article contains general information and should not be the basis for legal or tax advice. As with all matters of tax or legal consequence, readers should consult with their personal advisors regarding their specific situation.