Just prior to the usual April filing deadline, we published a brief update (CARES Act edition) on changes congress made to individual income tax returns for the 2019 tax year. The following information recaps the key changes, and explains a bit more about what has been happening since the last post.

Filing Deadlines (for 2019 returns)

One of the biggest changes to taxes (for 2019 only, at least so far), is that the Federal filing deadline for individual 2019 tax returns was moved from April 15 to July 15 due to the pandemic. (CNBC) Other Federal deadlines were pushed back to July 15 as well:

• You have until July 15 to make your 2019 contributions to your IRA or HSA
• If you pay estimated taxes, second quarter estimates were moved from June 15
• For a complete list of filings now due on July 15, check this IRS page.
• If you need an extension, you can apply for an extension until October 15, but if you owe taxes, you must pay what you think you owe by July 15.

Many states’ tax filing deadlines have changed as well, but not uniformly. Forbes provides a guide to state changes, as does the American Institute of CPAs.

If you still have questions about filing? Business Insider provided an FAQ type publication.

One interesting pandemic related fact you should know is that the IRS was only processing electronic returns, so you should file electronically. (The IRS has a free portal to do so.) This is critical if you are expecting a refund. IRS workers who are working from home can process electronic returns, and are doing so pretty quickly. Tens of millions of unopened returns/pieces of mail had piled up by the end of April, when the IRS started to recall some workers to start handling them. For more detail, check out this Federal News Network article.

One thing that did NOT change is the rule that the IRS must pay interest on refunds if not issued by April 15.  So, if you received your refund after that date, or haven't received one yet because you didn't file yet, you may get a second check!!! (Acorns)

Key Changes (for 2020)

Given that so many fewer people are itemizing their taxes under the new tax laws (12%), the $300 “above the line” deduction for charitable giving included in the CARES act will be useful to the other 88% of filers. There is still much confusion about this. For example, can a couple filing jointly deduct $600? What is known is that this special deduction at this point will only apply to deductions made in 2020. Stay tuned for further guidance from the IRS. (Philanthropy.com)

Did you receive a stimulus check? Make sure you hand on to the letter that came with it. Apparently it is an official IRS tax document you need to save! (Don't Mess With Taxes) since it is a tax credit for 2020. If your income drops in 2020, you may be able to claim more of the stimulus if the amount you received was reduced due to the level of your 2018 or 2019 income—the letter will be proof of what you received.

Barbara O’Neil’s June 4 “Money Talk” was all about the “Evolving Rules for RMDs (Required Minimum Deductions).” If you are looking for particulars on required deductions for any type of retirement account, this would be a good place to start. The key changes applicable to all types of accounts is that the CARES Act removed the RMD for the year 2020, given the volatility of the stock market around the pandemic.

Just this week, the IRS issued further guidance regarding RMDs and retirement savings account transactions for 2020 in general. Anne Tergesen of ths WSJ (subscription) expertly explains all of the particulars. Here are a few of the key clarifications for 2020:

• In the CARES Act, if you took RMDs between February 1 and May 15 (before the RMD requirement was removed), you could put the money back in before July 15.
  • Now funds withdrawn in January or withdrawn monthly, as well as rollovers and beneficiary withdrawals may be returned.
  • The deadline for these returns is now August 31.
  • The funds may be returned to the original account or another tax-deferred account.
• Limits on 401(k) loan amounts have been lifted.
• Anyone under 59 ½ impacted by the corona virus should be able to withdraw up to $100,000 without the 10% penalty, and spread the tax liability over 3 years, or repay the money and avoid the taxes. This includes:
  • People who had job offers rescinded or start dates delayed
  • People who have had coronavirus or have an ill spouse or dependent
  • People who have been laid off, furloughed, lost hours, had to quit to care for children, or had a household member lose income for those reasons

State Income Tax Issues

If you have been working from home during the pandemic, and home happens to be in a different state, you may be liable to pay state income taxes in both states for 2020 (or the duration of your WFH stint). Typically, most states with state income taxes impose the taxes on any income earned in that state, even if just passing through (think entertainers.) In some large metropolitan areas, like NY, people who live in neighboring states and commute are used to paying income taxes in both locations. This now may be true for the young professional who has moved back home with family (possibly saving rent, or to help parents) and is working remotely, or a professional working from their out-of-state vacation home during the pandemic.

Your tax liability will depend on the tax laws both where your employer/normal place of work is, and where you are temporarily residing. Relocating and changing your address from a high tax state like California to a low/no income tax state like Texas MAY not get you out of paying taxes in California.

Thirteen states and Washington DC have announced that they will NOT enforce their typical tax rules for those employed out-of-state and back temporarily. Some states already have reciprocity agreements for folks that live/work between those states.

Bottom line: keep track of the number of days you are living/working in each location!!! When filing your taxes for 2020, make sure to base your state tax payments on that information. (WSJ-subscription)

While we are on the subject of working from home, many federal deductions were eliminated in the Tax Cuts and Jobs Act, but some states still allow them. If you are now working from home and live in the seven states listed in this article, you might be able to get a bit of a break on your state taxes. (CNBC)

State coffers are running dry due to soaring unemployment costs, healthcare (Medicaid) costs, and lost income and sales taxes. Given the fact that most states cannot run a budget deficit (unlike the federal government), we must brace ourselves for huge budget and spending cuts. States have built rainy-day funds, but those funds and federal pandemic assistance won’t stretch very far at all. Ohio, for example, has called for an across the board 20% budget cut. This does not bode well for a speedy economic recovery. (The Economist)

If you are new to teaching taxes, please check out the April 2019 update on taxes that covers the changes made in the 2017 Tax Cuts and Jobs Act.

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