Iowa Tax Update for COVID-19
Filing and Tax Payment Extensions to July 31, 2020 and Possibly January 31, 2021
The Iowa Department of Revenue has extended the tax return filing and payment deadline to July 31, 2020 for certain individual, composite (nonresident partners), partnership, corporate, S corporation, fiduciary (not including Iowa Form 706 Inheritance Tax returns), franchise, and moneys and credits taxes that were originally due on or after March 19, 2020, and before July 31, 2020. There will be no late payment or underpayment penalties on these extended Iowa tax payment due dates so long as the filing and payments are timely made, and interest will not begin to accrue on the unpaid tax until August 1, 2020. Additionally, previously extended tax returns with an extended due date on or after March 19, 2020, but before July 31, 2020, are eligible for the filing extension until July 31, 2020. Note that this does not include an extension of time to pay tax, and interest is suspended from accruing only for the period between March 19, 2020 to July 31, 2020.
Certain Iowa tax returns extended until July 31, 2020 (Iowa Forms 1040, 1040C, 1041, 1120, 1120S, 1065, and 1120F) are eligible for an automatic 6-month extension to file until January 31, 2021 if at least 90% of the tax due is paid by July 31, 2020. Note that this does not extend the due date to pay tax. Previously extended returns that were provided an additional extension are not eligible for this automatic extension until January 31, 2021, or to the Credit Union Moneys and Credits Tax Confidential Report. Interest will begin accruing on any remaining tax due on August 1, 2020. Note that although Iowa allows an automatic 6-month extension from the new July 31, 2020 due date until January 31, 2021, the filing date for Federal returns may only be extended until October 15, 2020.
Underpayment Relief for 2020 Estimated Tax Payments
Although Iowa did not modify the first and second quarter estimated tax payment due dates, Iowa did provide conditional penalty relief for taxpayers that are required to make quarterly estimated tax payments for Iowa individual income tax, corporate income tax, or franchise taxes for a tax year beginning in 2020 and that have an installment due date on or after April 30, 2020 and before July 31, 2020. To qualify for the relief, taxpayers’ first and second installments paid must meet certain requirements. Generally, for each of the first and second estimated tax installment payments due in 2020, the payment must equal or be greater than a specified percentage of tax due on the taxpayer’s 2018 Iowa income tax return.
The specified percentage depends on the taxpayer’s filing status and 2018 Federal adjusted gross income as modified for Iowa purposes. There is a similar provision for corporations. Additionally, taxpayers that take advantage of the conditional penalty relief must increase their next Iowa estimated tax payment due after July 31, 2020, by the difference, if any, between a) the total underpayment of the first two estimated tax payments due before July 31, 2020, without taking advantage of the conditional penalty relief and b) the total estimated tax payments due for the same period as a result of taking advantage of the conditional penalty relief. In other words, a “catch-up” payment may be necessary for the third quarter (which is due September 30, 2020)
Iowa Relief for Sales and Withholding Tax
Although the due dates for filing and payment of Iowa sales and withholding tax have not been extended, Iowa businesses with sales and withholding tax permits may apply through the Iowa Small Business Relief Program for deferral of sales or withholding tax payments due. There are two rounds of the program. The first round has passed in that sales and withholding tax returns and payments due between March 20, 2020 and April 30, 2020 were eligible for a 60-day deferral. For the second round, sales and withholding tax payments for periods beginning May 1, 2020 through June 30, 2020 are eligible for a 30-day deferral.
Note that returns in the second round must still be timely filed for the period. Applications will be considered based on economic loss due to COVID-19 and good standing with the Iowa Department of Revenue. Interest begins to accrue 61 days after the original due date for payments deferred in the first round of the program, while penalties apply and interest begins to accrue 31 days after the original due date for payments deferred in the second round. Note that if relief is not granted by application, other statutory penalty (not interest) relief may be available.
Iowa Unemployment Tax Payments Extension
Iowa extended first quarter unemployment tax payments for certain small-business employers that were originally due on April 30, 2020 until July 31, 2020. To be eligible, the employer must have 50 or fewer employees and not have any delinquencies in quarterly unemployment tax payments. A Quarterly Employer Contribution and Payroll Report must have been filed by April 30, 2020 to avoid a late penalty. Interest and penalties on the extended payments for eligible small-business employers will not begin to accrue until August 1, 2020.
Unemployment Insurance Claims
Unemployment benefits are available for persons affected by COVID-19 in the following ways so long as they meet all other eligibility requirements: a) being laid off due to COVID-19, b) being required to self-isolate, or c) caring for family members due to illness related to COVID-19. Requirements to search for work have been temporarily waived. If employees are laid off or unable to work due to COVID-19, paid leave is not required to be used up before becoming eligible for unemployment insurance benefits. Refusal to return to work generally disqualifies a person from unemployment benefits unless the person tested positive for COVID-19 or cannot obtain child care due to COVID-19.
Property Taxes and Assessment
Iowa property tax payments were due on March 31, 2020. Late payments will be classified as delinquent, but penalties and interest are waived.
Iowa Withholding Tax
The deposit due date for taxpayers who remit withholding tax on a semi-monthly basis, which was originally due March 25, 2020 for the the period ending March 15, 2020, was extended until April 10, 2020. Interest for late payments that were extended will begin accruing on April 11, 2020.
Iowa Small Business Relief Grants
Grants ranging from $5,000 to $25,000 are available through the Iowa Department of Economic Authority for small businesses impacted by COVID-19. Although the first application period already ended on March 31, 2020, a second phase under the Federal CARES Act has been authorized. Grants will be awarded until all funds have been used.
College Savings Iowa
An election can be made to treat contributions to an Iowa Educational Savings (529) plan or College Savings Iowa made from January 1, 2020 through July 31, 2020 as contributions for the 2019 tax year. Total 2019 contributions remain subject to the same 2019 contribution limit.
Iowa Taxation of Federal Forgiven Paycheck Protection Program (“PPP”) Loans
Under the new Federal CARES Act, Paycheck Protection Program (“PPP”) loans may be forgiven if certain requirements are met. Click here for additional information about PPP loans. This loan forgiveness is specifically excluded from being considered cancellation of debt income at the Federal level, meaning it is not includible in Federal gross income. PPP loans that are forgiven and properly excluded from Federal gross income under Section 1106 of the CARES Act in a tax year beginning on or after January 1, 2020, are also excludable from income for Iowa tax purposes. Note that this Iowa exclusion is not applicable for PPP loan forgiveness for tax years beginning prior to January 1, 2020. As necessary, additional guidance may be provided by the Iowa Department of Revenue.
This article was written for general informational purposes and summarizes the tax laws as currently written without significant guidance. As such, it should not be relied upon for compliance with Iowa tax laws or the Internal Revenue Code.
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