NOVEL CORONAVIRUS (COVID-19) UPDATES

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How Does the CARES Act Impact You?

By Ashley Phillips, Ph.D.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act addresses the economic impact of the COVID-19. The CARES Act provides tax relief to individuals through direct cash payments. Here’s how it could help you.

Who will receive the direct cash payments and in what amounts?

Ashley Phillips, Ph.D.

The direct cash payment will be $1,200 for each adult, $2,400 for a married couple filing jointly and $500 per child age 16 and younger.

Single individuals with adjusted gross income (AGI) over $75,000 will have their checks reduced by $5 for every $100 over the amount of $75,000, and married couples who file joint returns will have their checks reduced by $5 for every $100 over the amount of $150,000. Individuals who file as head of household will have their checks reduced by $5 for every $100 over the amount of $112,500. The payments phase out at $99,000 for individuals, $198,000 for married couples, and $136,500 for heads of household.

Most payments will be based on the taxpayer AGI as reported on a 2019 federal income tax return if it has already been filed. If the 2019 federal income tax return has not yet been filed, then AGI will be based on the 2018 federal income tax return.  If a retiree did not file a tax return in 2018 or 2019 due to their only source of income being Social Security benefits, the payments will be based on any Social Security benefits statement. For individuals who do not receive Social Security benefits and who do not typically file taxes because they do not have a filing obligation, they will need to file a tax return to receive a stimulus check. Individuals in this situation may take advantage of the IRS free file program. Details may be found here.

Is anyone ineligible to receive direct cash payments and in what amounts?

Parents will not receive a $500 payment for dependent children ages 17 or 18. Furthermore, college students and adults who can be claimed as a dependent will not receive a payment. Moreover, individuals must have a Social Security number to receive direct cash payment.

Is the payment taxable income and will the payment amount be reduced if back taxes are owed?

The payments will not be considered taxable income. The payment will not be reduced if you owe back federal or state income taxes. However, the payment may be reduced if an individual owes back child support.

When will the payments be made?

Treasury Secretary Steven Mnuchin stated that individuals can expect a direct deposit into their bank accounts within 3 weeks. If the IRS does not have an individual’s bank account information, then a check will be mailed and there will likely be a delay.

Ashley Phillips is an Assistant Professor of Accounting at the University of Central Arkansas College of Business.

How To Approach the Tax Extension

Ashley Phillips, Ph.D.

In response to COVID-19, the Internal Revenue Service has extended the due date for filing 2019 federal income tax returns and remitting federal income tax payments until July 15.

This relief applies to federal income tax payments — including the payment self-employment income tax — and federal income tax returns due on April 15. The July extension is automatic. Arkansas Gov. Asa Hutchinson extended the deadline for filing state income tax returns to July 15, as well. However, the deadline for Arkansas’ estimated tax payments has not been extended.

To understand how Arkansans should approach the federal and state tax deadline extension, we spoke with Ashley Phillips, Ph.D., assistant professor of accounting, who was a tax attorney with the IRS for five years before joining the UCA College of Business in 2016.

When should a return be filed?

“Everyone should file their federal and state income tax returns as soon as possible rather than waiting until July 15. One important reason for filing your return as early as possible is to reduce the risk of tax identity theft. Filing tax returns prevents an identity thief from later electronically filing a return using your personal information to claim a fraudulent refund. The IRS is encouraging taxpayers who expect a refund to file their return as soon as possible. For those expecting a refund, filing a tax return electronically with direct deposit is the quickest way to receive the refund.

If a tax payment is due, the return may still be filed now and the tax due may be remitted closer to July 15. If you are concerned that you will not have the ability to pay the tax due, then a payment plan with the IRS should be considered. The IRS has short-term (120 days or less) payment plans and long-term (more than 120 days) installment plans. More information on these payment plans can be found on the IRS website. It is important to remember interest, penalties and additions to tax for postponed federal income tax filings and payments will begin to accrue on July 16 for returns not filed or tax payments not remitted by July 15.

If an extension of time beyond the July deadline is needed, then an application for extension should be filed on Form 4868 by July 15.”

What is the impact of the extension on estimated payments?

“All first-quarter estimated income tax payments for the 2020 tax year due on April 15 are now due July 15. The extension of time does not apply to the second-quarter estimated income tax payments due on June 15.”

What is the deadline for 2019 IRA contributions?

“The deadline for making IRA contributions for 2019 has also been extended until July 15.”