Coronavirus COVID-19 and Taxes. The first reported cases of Coronavirus (COVID 19) in the United States happen to coincide with income tax filing season. For tax people like us, Coronavirus COVID-19 and taxes begs the question, how will Coronavirus affect the taxes of individuals and businesses? This article will be based on the laws currently in place and Congress may enact new legislation in response to the Coronavirus.
At this point in time, nobody is certain how Coronavirus will spread, how many people it will infect, and how it will affect those infected. As tax attorneys, it is not our place to opine on public health concerns and by no means do we intend to cause undue alarm or dismiss legitimate and reasonable concerns. Please consult with the Center for Disease Control, World Health Organization, and other public health agencies for up to date information about COVID 19.
Regardless of the COVID-19’s epidemiological outcome, it has already caused disruptions to the American economy. Among other things, the Coronavirus has led to the cancellation of sporting events, trade shows, festivals, and other events. It has also disrupted the stock markets and has led to school closures. What is the impact of Coronavirus COVID-19 and Taxes?
One possible impact of the Coronavirus may be possible changes to the tax rules to provide relief to individuals and businesses affected COVID-19. Among other things, President Trump has proposed tax breaks for affected industries like the travel industry and a payroll tax cut to all businesses. Other proposals from the President and others are bound to follow.
One potential tax consequence is a lower tax bill at the end of the year because of lower income. Coronavirus is already disrupting at least some businesses and causing them to earn less this year. A lower tax bill could be some consolation to individuals and businesses who have been affected by the virus.
Another potential tax consequence is that businesses may incur costs in their efforts to protect their workers, customers, and others from the virus. For example, a business may pay for janitorial services to “deep clean” its facility or may purchase masks or gloves. Many of these expenses would be deductible for businesses.
Another potential area that could affect a taxpayer’s bottom line is a casualty loss. Businesses can take casualty loss deductions for losses that occur as a result of fires, natural disasters, or other casualties. In the event COVID-19 lead to the damage or destruction of some property, a business could have a potential casualty loss. Individuals can only claim casualty losses if the loss declared in a federally declared disaster area. To date, the federal government has not made any declaration of a disaster so any potential casualty that arose from a Corona Virus related event could not be claimed as a casualty loss by an individual taxpayer.
Individuals who suffer from COVID-19 infections and require medical treatment may be able to deduct some of their out of pocket medical expenses. There is no deduction for medical expenses that are below 10% of a taxpayer’s adjusted gross income and there is no deduction for expenses covered by insurance. A taxpayer can combine medical expenses related to COVID-19 infections with other medical expenses.
To give an example of how this works, let us say a taxpayer has an adjusted gross income of $100,000 and contracts Coronavirus. Let us say this taxpayer requires a $5,000 hospital visit for her COVID-19 infection and let us say this person also incurs $2,000 of out-of-pocket medical expenses throughout the year for items like eyeglasses and dental worker.
This taxpayer’s total medical expenses (including the $5,000 Corona Virus expenses) are $7,000. The Taxpayer’s adjusted gross income is $100,000 and 10% of $100,000 is $10,000. This taxpayer will not get a medical expense deduction.
Let us say this taxpayer has a $12,000 hospital visit instead of a $5,000 hospital visit. Let us also say this person has $2,000 of other out of pocket medical expenses like eyeglasses and dental work. This person’s total medical expenses are $14,000. 10% of the Taxpayer’s income is $10,000. This taxpayer would get a $4,000 tax deduction ($14,000 total medical expenses minus $10,000).
The potential costs that are covered by the medical expense deduction would include the obvious items like amounts paid for doctors’ bills, medications, hospital bills, and the like. Unlike most other illnesses, Coronavirus patients (and those suspected of having Coronavirus) are being subjected to quarantines. Quarantines may have costs for patients like childcare costs for children who are not under quarantine, travel expenses, and other incidental costs. Some of these incidental costs may not be deductible as medical expenses, or at least they are not deductible under the current law.
Quarantines and workplace closures may impose costs on workers who work from home. Workers who previously worked at their employer’s place of work may find themselves working from home as a result of the COVID-19. These workers may need to purchase office supplies, office equipment, and other items in order to work from home. These workers may also have pay for services like an upgraded data plan to work from home as well. Some employers may reimburse their employees for these services which would lead to no taxable consequences for the workers. Other employers may not reimburse their employees. Under the 2018 Tax Cuts and Jobs Acts, unreimbursed employee expenses are no longer deductible.
The news concerning the Coronavirus is constantly changing. The way Congress and the IRS will react to COVID 19 in also in a state of flux with various proposals being debated as we speak.
Published by Joe Cole