Income Tax: Can You Delay Taxes Because of COVID-19?

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Are you a small business owner? And, has your business been knocked by the hard lockdown where all non-essential businesses were forced to close? You might only be opening up now. Or, you might still be closed because the state your company is registered in, is still under partial lockdown to prevent and control the spread of the novel coronavirus COVID-19.

The virus and its progress have dominated world headlines since the last days of 2019. As a result, people are growing weary of hearing about the devastating impact that COVID-19 has had, and continues to have, on the world. Apart from the devasting loss of life, the global economy ground to an instant halt. Consequently, many countries are emerging out of their hard lockdowns in an attempt to reboot the economy.

Unfortunately, the daily numbers are still climbing rapidly, demonstrating that certain countries might have opened too early or people are disregarding the social distancing laws. The website showed that on 19 June 2024, the highest daily infection rate was reported. There were 180 861 cases reported in the 24-hour period.

Why is this fact important?

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Succinctly stated, if there is a second wave of the COVID-19 peak, the world’s healthcare systems will once again be overwhelmed. James Gallagher of the notes that the coronavirus pandemic is not yet over by any means.

However, at this juncture, no one knows whether a second wave will hit the world, what form it will take, and what the consequences will be for the global economy. Gallagher compares this pandemic to the Spanish Flu pandemic that occurred a century ago. And, if the COVID-19 pandemic is similar to the Spanish Flu pandemic, the second wave will be worse than the first.

The challenge is that national governments are starting to run out of money, and they cannot continue social welfare support programs indefinitely, especially some of the emerging market economies like South Africa.

The United States is still in the position where it can afford to support a sizeable number of its citizens and offer tax incentives to keep small businesses running and, in the position, to keep employees on their payrolls. However, it is also reasonable to assume that this scenario is untenable in the long run.

At this juncture, the US federal government has signed four stimulus bills into law: the CARES (Coronavirus Aid, Relief, and Economic Security) Act, the Families First Coronavirus Response (FFCRA) Act, a $3 trillion stimulus bill, and a $2 trillion stimulus bill.

The Families First Coronavirus Response Act

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The FCRA Act primarily deals with paid sick leave and extended family and medical leave for reasons related to COVID-19. In essence, it requires employers to provide paid leave if the employee has contracted the virus, or if the employee has to stay at home to care for a family member who has contracted the virus. Finally, there is a provision that allows parents who have young children to receive paid leave while they stay at home to look after their children because schools and daycare facilities have been forced to close.

Additionally, this act contains several tax provisions to fund the act’s mandatory paid leave provisions. In other words, employers are granted refundable tax credits equal to 100% of the qualified paid leave paid by the employer. Thus, if you, as an employer, have paid out $10 000 in COVID-19 related extended family and medical leave, then you are entitled to $10 000 worth of tax credits or tax rebates worth $10 000.

The Coronavirus Aid, Relief, and Economic Security Act

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According to the US Treasury Department, the CARES Act “provides fast and direct economic assistance for American workers and families, small businesses, and preserves jobs for American industries.” And in summary, the answer to whether you can delay your taxes because of COVID-19 is found within this act.

The Paycheck Protection Program is the part of the Act that allows employers to claim a 50% tax credit on the wages paid to employees for the 2024 calendar year from 13 March 2024 to the end of the year. This provision aims to help employers keep their staff on their payroll without laying them off or furloughing them.

The deadline date for 2019 tax returns has been extended to 15 July 2024. And, should individuals not file a return for 20249, the Federal Treasury will use the 2018 return to calculate the 2019 return and pay the rebate into the bank account details on file, should the individual qualify for one.

The Net Operating Losses (NOLs) from 2018, 2019, and 2024 are allowed to be carried back five years from the first year of the loss to reduce the net taxable income from earlier tax years.

The corporate charitable contribution allowance has increased from 10% to 25% of the annual taxable income. And the charitable contribution deduction limit for food is also increased to 25%.

Coronavirus Relief Act

This Act allows employers to defer their 2024 Social Security payroll taxes as follows:

The first 50% of these taxes are due on 31 December 2024 and the remaining 50% are due on 31 December 2024.

Final thoughts

While the US Federal government has passed these four Acts to help the small business, and the self-employed individual, stay afloat during the tough economic times created by the COVID-19 pandemic, it’s vital to consult with a specialist tax consulting firm to ensure that the terms and conditions of these Acts are complied with.

Because, as worthwhile as these tax credits, pushbacks, and rebates are, there is no doubt that there could be a substantial amount of confusion for employers trying to determine which of these tax-saving measures are applicable. Therefore, it is essential to go to the Philip Stein website for more information concerning COVID-19 and these stimulus bills.