The coronavirus (COVID-19) pandemic has not only upended the economy; it has also been the catalyst for several tax changes. The Families First Coronavirus Response Act (H.R. 6201), which was signed into law on March 18, 2020, creates new paid leave payments for employees and new tax credits for small employers. The Joint Committee on Taxation pegs the cost of this relief at more than $104 billion. In addition to congressional action, the IRS has made some COVID-19 pronouncements of note.

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Tax Filing and Payment Deferral 

The IRS extended the deadline for filing 2019 returns for individuals and calendar-year C corporations from April 15, 2020, to July 15, 2020 (Notice 2020-18). Taxpayers do not have to file for an extension unless they need more time beyond the new filing date; in that case, they should use Form 4868 for individuals or Form 7004 for corporations. 

The April 15, 2020 payment deadline for income taxes was also extended to July 15, 2020 (Notice 2020- 17). This extension covers 2019 taxes that are still out- standing on April 15, as well as 2020 estimated taxes due on April 15. It does not apply to deposits of employment taxes, which continue to be due as scheduled. 

Interest, additions to tax, and tax penalties will begin to accrue for unpaid income tax amounts beginning on July 16, 2020. Taxpayers may, however, request reasonable cause relief from the failure-to-pay penalty [Internal Revenue Code (IRC) section 6651] or the failure by corporate taxpayers to pay estimated taxes (IRC section 6655). 

New Paid Leave 

There are two types of paid leave under the new law, both of which apply through 2020: paid sick leave for employees and paid family leave for employees. Employers with fewer than 500 employees must provide these benefits to eligible employees. Employers with fewer than 50 employees may be exempt from the requirement to provide leave to care for a child whose school is closed or if child care is unavailable, if providing the benefit would threaten the viability of the business. (The Department of Labor will provide emergency guidance to articulate this standard.) Larger employers are not required to provide any paid leave, but as a practical matter, it is common for large employers to offer paid sick leave, and many also offer paid family and medical leave. 

Paid sick leave. This equals 100% of regular pay (up to a $511 daily limit). Essentially, this replaces the full pay of those earning up to $133,000 per year; those earning more will receive a partial pay replacement. Pay is replaced for up to two weeks (a total of 10 days) for an employee who has the coronavirus, is symptomatic and seeking a medical diagnosis for COVID-19, or is self-isolated or quarantined pursuant to instructions from a medical or governmental authority. 

Paid family leave. This equals two-thirds of regular pay (up to a $200 daily limit) for those earning up to $78,000 per year; those earning more than this amount receive less than two-thirds of their regular pay. Pay is replaced for up to 10 weeks for an employee who is caring for an individual who has the virus, is caring for a child who is out of school (under age 18) or without day care, or is experiencing any substantially similar condition to be specified by the Department of Health and Human Services in consultation with the IRS and the Department of Labor. Paid family leave is only for someone unable to work—meaning those who can telework are not eligible for the benefit. The first two weeks (10 days) of family leave do not have to be paid, although employees can use their accrued leave time to cover their needs during this period, after which the 10 weeks of paid leave kicks in.

Employer tax credit. This credit is a dollar-for-dollar reduction of certain employment tax liability on the part of an employer for paid sick or family leave associated with COVID-19, up to set limits (explained below). More specifically, the employer credit is an offset to the employer share of the Social Security portion of FICA. Employers that were already offering these benefits can still claim the tax credit (subject to the daily caps on employee paid benefits).

The maximum number of days taken into account for any calendar quarter can- not exceed 10 over the aggregate number of days taken into account in the preceding quarters (i.e., only 10 days in total for the year). The maximum amount taken into account for the credit with respect to paid family leave wages cannot exceed $10,000 per employee for any calendar quarter. If the amount of the credit exceeds the tax in any calendar quarter, it is treated as an overpayment that can be refunded to the employer.

Employers can retain funds that would otherwise be used for payroll taxes with respect to the paid leave in order to have the money needed for the paid leave. For example, if an employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes (including amounts withheld from employees), the employer could use up to $5,000 to pay the sick leave and deposit only $3,000 on the next regular deposit date. If these funds are insufficient, employers will be able to seek an expedited advance from the IRS by submitting a streamlined claim form (expected to be released very soon). For example, if the employer paid $10,000 in sick leave and was required to deposit $8,000 in payroll taxes, the employer could use all of the $8,000 to make the required sick leave payments and request an accelerated credit for the remaining $2,000.

Self-employed individuals. A self- employed individual who is not an employee eligible for paid sick or family leave can take a refundable income tax credit equivalent to the leave amount. An eligible self- employed individual is a person who regularly carries on a trade or business and would be entitled to receive paid leave if he were an employee.

The credit for the sick leave equivalent amount is equal to the number of days the self-employed person is unable to perform services in the trade or business (no more than the number of days applicable to employees) multiplied by the lesser of the amounts applicable for employees (either the $511 cap or the $200 cap, depending on the reason for not working) or 67% (100% for sick leave) of the average daily self-employment income of the individual for the tax year. This is equal to the net earnings from self-employment for the year divided by 260.

The credit for the paid family leave is the qualified family leave equivalent amount for the number of days (not to exceed 50) that the person is unable to perform services in a trade or business, multiplied by the lesser of 67% of the average daily self-employment income or $200.

The self-employed individual must maintain documentation to support the credit. The IRS guidance on this has yet to be issued. If the self-employed person also has a job from which paid leave is provided, she cannot receive a double benefit. No tax credit related to self-employment can also be claimed.

State measures. The above discussion covers federal tax rules, but there may also be state rules to consider. For example, New York enacted a measure ( to provide sick leave and job protection resulting from the COVID-19 quarantine; employers with 10 or fewer employees and a net income of less than $1 million are only required to provide unpaid, but job-protected, sick leave.

High Deductible Health Plans 

A high deductible health plan (HDHP) is a prerequisite to funding a health savings account (HSA). An HDHP is health cover- age with a minimum deductible and maximum out-of-pocket limit for self-only and family policies that is fixed annually by the IRS. For example, the deductible for 2020 must be at least $1,440 per individual or $2,800 per family, and the annual out-of- pocket expenses must be $6,900 per individual or $13,800 per family or less. In general, the HDHP cannot cover medical expenses until the deductible under the policy has been exhausted; however, certain preventive care treatments are excepted from this requirement.

In light of the current pandemic, the IRS has made it clear that testing and treatment for COVID-19 can be paid without a deductible and will not disqualify the insurance as an HDHP ( This will allow those covered by the HDHP to make tax-deductible contributions to their HSAs even if their insurance provides virus-related benefits before they’ve used up their insurance deductible.

IRS Updates

The IRS has created a Coronavirus Tax Relief webpage ( coronavirus) to provide updates on virus-related tax changes.

More to Come

The IRS has provided only preliminary information regarding the new paid leave provisions (IR-2020-57). With the spread of the virus and the continued volatility in the marketplace, expect to see additional tax changes from Congress and the IRS very soon. This is only the beginning.

Sidney Kess, JD, LLM, CPA, is of counsel to Kostelanetz & Fink and a senior consul- tant to Citrin Cooperman & Co., LLP. He is a member of the NYSSCPA Hall of Fame and was awarded the Society’s Outstanding CPA in Education Award in May 2015. He is also a member of The CPA Journal Editorial Advisory Board. Reprinted with permission from the March 25, 2020 edition of the New York Law Journal © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited; contact 877-257-3382 or