COVID-19 has made it more difficult for many individuals and businesses to pay their taxes. It also may put some taxpayers at risk of a significant tax bill next year and beyond. Fortunately, there are remedies that can help minimize liability. Here are some key provisions taxpayers need to know:
COVID-19 Tax Relief
The U.S. and New York State governments initially responded to COVID with several tax relief measures. While many have expired, others remain in place to help taxpayers resolve their tax problems.
- Payment Options. For people facing hardships who cannot pay in full, several payment options are available including an Online Payment Agreement, Installment Agreement, and Offer in Compromise. In November 2020, the IRS also announced that some of these options have been simplified and/or expanded in many cases. Further, for those with an existing Offer in Compromise, the IRS has indicated its willingness to work with taxpayers unable to meet the terms of their agreement.
- Collections. Taxpayers can request a temporary delay of the collection process. If the IRS agrees a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves, although penalties and interest continue to accrue until the full amount is paid.
- Penalty abatement. The IRS may grant qualified taxpayers penalty abatement if the taxpayer had reasonable cause for not filing a return or paying taxes. In addition, the first-time penalty abatement waiver may be available to qualified taxpayers.
- Automatic addition of certain new tax year balances. For individuals and out of business entities, the IRS will automatically include certain new tax year balances to existing Installment Agreements so these taxpayers can avoid default of the agreement.
- Audits and Collections. Taxpayers should request audit extensions and/or relief from collection actions if necessary due to COVID or other financial hardship.
- Payment Options. Taxpayers unable to pay their tax bills in full may qualify for an Installment Payment Agreement (IPA) or Offer in Compromise.
Additional information for taxpayers is available on the IRS and New York State Coronavirus web pages.
COVID-Related New York Residency Audits
Due to COVID-19, some taxpayers relocated to another residence or were unable to return to their usual residence because of limitations on travel and shelter-in-place orders. Other taxpayers who lived and worked in different states and usually traveled back and forth, started telecommuting during COVID-19. These situations could have affected their residency for New York state or city tax purposes. As a result, taxpayers may be in for a big surprise come next tax season.
To avoid tax problems and get more information on this issue, see Will COVID-19 Affect Your Clients’ New York State Tax Residency?
New York Taxation of Telecommuters
Many people have been telecommuting for work due to COVID, which can result in tax issues. For taxpayers who live outside New York but have a primary office in New York, days spent telecommuting from outside New York during the pandemic are still considered days worked in New York with one exception. As a result, those taxpayers will continue to owe New York State income taxes on that income even though they were not physically working in New York. The exception is if the taxpayer’s employer established a bona fide employer office at the taxpayer’s telecommuting location. There are many factors the state uses to determine whether an employer meets the requirements. To learn more, visit the New York State website or contact us.