AS OF: MAY 22, 2020
The federal government has passed recent laws in response to COVID-19. Here's what you need to know about the extended 2019 tax filing deadline and new laws around paid sick and family leave.
Extended Tax Filing Deadline:
The deadline to file and pay 2019 taxes has been extended to July 15, 2020.
The IRS has officially extended the federal income tax filing and payment deadline to July 15, 2020, instead of April 15, 2020. This applies to taxpayers' 2019 tax returns, as well as any federal estimated income tax payments that are due for Q1 and Q2 2020.
Families First Coronavirus Response Act: Paid Sick Leave
If you don’t get paid sick time from an employer because you’re self-employed or a gig worker, there’s a new law that will allow you to get paid by the government for time that you’re unable to work because of an illness. You are now eligible for 10 days of sick time that will be paid by the government through a tax credit. Here’s how it works:
Stay home when you’re sick — take care of yourself!
Claim a “rough justice” tax credit for the income
Lower the amount of taxes you owe by the credit
The amount of your reimbursement will be based on your “daily” income. That’s a bit of a confusing concept when you’re self-employed, but basically you take the amount you earn in a year, divide that by 52 weeks and then divide that by 5 days. That number is the average amount you make on a work day.
The maximum reimbursement is $511 per day, for those who make $132,900 per year or more.
Let’s look at an example. You make $52,000 per year being self-employed. That means you earn $1,000 per week, and $200 per day. If you are sick for 10 days this year, you are able to earn a tax credit for $2,000. You can now lower the amount you would be paying the government for taxes by $2,000. If you owe less than $2,000, you’ll get a tax refund for the additional amount.
What do I need to do right now?
Right now, you just need to take care of yourself while you’re sick. You may also want to lower your withholding a little bit to keep more of your money in your pocket over the next several months. You don’t have to have all of the specifics figured out until your taxes are due.
Families First Coronavirus Response Act: Paid Family Leave
In addition to paid sick leave, the new law provides for paid family leave if you now have to take care of a minor child because of a closure of school or other place of care (like daycare).
Similar to the paid sick time provision, you can earn a government tax credit from a portion of your income. You can be paid two thirds (66.7%) of your income, up to $200 per day for up to 12 weeks. The first ten days are unpaid, but you may apply your sick leave time to these days.
Looking at the same example: If you earn $52,000 per year, you earn $1,000 per week and $200 per day. If you need to take care of a young child for 12 weeks this year, you can be paid 2/3 of your daily income for that time ($133.33 per day). For the first ten days, you don’t qualify for the family leave, but you can apply your sick leave time (reminder that’s 100% of your $200 per day for a total of $2,000). For the remaining 10 weeks, you can claim $133.33 per day. That means you’ll earn a tax credit $2,000 for the first 2 weeks and then $6,666.50 for the other 10 weeks for a grand total of $8,666.50 in tax credits. If you owe less than $8,666.50, you’ll get a tax refund for the additional amount.
What do I need to do right now?
Right now, you just need to take care of your children. You may also want to lower your withholding significantly to keep more of your money in your pocket over the next several months. You don’t have to have all of the specifics figured out until your taxes are due.