Covid-19 Deferral of Tax Payments
Credit: Jacob M. Dietz, CPA
Income Taxes
In response to the novel Coronavirus (Covid-19) the federal government and various state and local jurisdictions have extended the deadline to pay the 2019 tax balances and the deadline to pay the first and second quarterly estimates for 2020. Generally business owners should pay the 2019 tax balances on or before the due date. In most cases, that will be July 15. If you are unsure of the due date, feel free to give us a call or email.
For the quarterly estimates, however, consider carefully before paying them. If your income will be reduced for 2020, then you may not need to pay quarterly estimates, or you may not need to pay as much in quarterly estimates.
If you pay more than will be needed for quarterly estimates, you may request a refund when filing your 2020 tax return in 2021. What if you need the cash later in 2020, however, after you already paid in the quarterly estimates? That could be frustrating to operate your business without enough cash.
If you pay too little in quarterly estimates, then you may find yourself owing interest and penalties in 2021 when you file your 2020 tax return. You might find it worth it to pay those penalties and interest, however, if the cash helped tide you over during a rough time.
In summary, pay your 2019 taxes on or before the due date. For 2020 estimates, consider whether you want to pay them, skip them, or pay reduced estimates. If you want to discuss, please call or email us.
PA Sales Tax
Certain businesses are required to pay Accelerated Sales Tax (AST), which is essentially a payment of sales tax during the month which will be applied against the sales tax due after the month ends. For April 2020, PA is waiving the AST requirement. Businesses still must remit what was collected for March, but they don’t need to make the AST payment towards April’s sales tax. This waiver also applies to May and June.
Employer Social Security Taxes
The CARES act allows employers to defer their portion of social security tax. Please note that this particular deferral does not apply to other payroll taxes. There are, however, credits which may allow an employer to take a credit against other employment taxes, but those credits are beyond the scope of this blog. Please also note that an employer that has a Paycheck Protection Program loan forgiven no longer qualifies for this deferral.
Self-employed taxpayers, that are not 4029 exempt, may defer payment of 50% of the social security tax on their earnings. They could therefore pay less in estimated taxes.
If an employer defers their portion of social security tax, then half of it is due 12/31/2021, and the other half is due 12/31/2022. Before taking advantage of this deferral, ask yourself what will happen if 12/31/2021 arrives, and you are unable to pay at that time?
Options
This blog only mentions some of the various options available as you navigate these times. These deferral options allow businesses to delay making payments, which may help cash flow, but do not involve accepting free money. Before making big decisions, seek information, talk with your advisors, and weigh the options. “In the multitude of counsellors there is safety.”
This article is general in nature, and it does not contain legal advice. Contact your advisors to discuss your specific situation.