Tax relief in sight? How COVID-19 might impact state and federal taxes
With over 1,215 cases of COVID-19 in the United States, the measures being taken to stop the spread of the new coronavirus are ramping up. Jay Inslee, governor of the hard-hit Washington state, recently banned gatherings and events of more than 250 people in the Seattle metropolitan area.
Because more and more areas of the country are seeing COVID-19 cases rise, many people are choosing to stay home. No going out to eat at restaurants, no seeing movies, no attending sporting events, and no shopping at local stores.
Small to mid-size businesses, and their employees, are being hardest hit, and that’s led the federal government to consider two big actions related to COVID-19 coronavirus tax relief.
1. The April 15th tax deadline could be extended with no interest/penalty “late” tax payments
President Trump has said he will direct the Treasury to allow individuals and businesses negatively impacted by COVID-19 to defer tax filings and payments past the April 15 deadline without being charged interest or penalties.
It’s not clear yet how long this filing extension is or who exactly qualifies, but the intention is to make “$200 billion of additional liquidity” available to go into the economy — or, rather, stay with the small to mid-size businesses who aren’t getting customers, as well as the employees who are seeing their hours cut or having to stay home completely in quarantine.
Lawmakers recently have expressed concern about the ability of tax payers and tax professionals preparing returns to meet the filing deadline, as well as the IRS’s ability to assist taxpayers and process returns.
States may, but are not required to, follow the federal government and delay their own filing deadlines, but so far no state has made an announcement.
March 17 update: The April 15 tax payment deadline has been extended by 90 days for some individuals and corporations. Click here to learn more.
2. There may be a payroll tax cut
The president would also like a payroll tax cut to help offset the economic effects of COVID-19. He has apparently told senators he wants to reduce the tax through November.
Whether the tax cut would be effective remains to be seen. The benefits of a payroll tax cut are generally more significant the larger the individual’s paycheck. It won’t help hourly employees who are seeing their hours cut, because they’re going to have reduced paychecks.
While the payroll tax was cut during the “Great Recession” to encourage consumer spending, it may not be as effective during a time when consumers are choosing (or being directed) to stay home for safety, or the dollars may go to other segments of the economy such as “stay at home” companies (like Netflix and Amazon) as opposed to the overall economy.
How coronavirus tax relief impacts states and fed
Businesses and individuals aren’t the only ones impacted by COVID-19. State governments and the federal government may be impacted, too, with their own shutdowns or possibly reduced revenue.
On March 9, 2020, the Dow dropped over 2,000 points, which was the biggest decline since 2008. The stock market has been volatile this year, and combined with this drastic drop, it may impact state tax revenues as investors will likely recognize significantly less capital gains than in the last 203 years.
Additionally, the president’s desire to extend the tax filing and payment deadline may mean the federal government will need to borrow money in the short-term.
If you’d like to learn more about how COVID-19 is affecting small businesses, individuals and organizations across the country, visit Wipfli’s COVID-19 resource center.
