The Internal Revenue Service is one of many agencies still feeling the effects of office closures due to COVID-19. Like many businesses, the IRS shut its doors this Spring due to the pandemic. As a result of the closure, a large backlog of unopened mail for the agency has accumulated. Even though many IRS employees have now returned to the office, more mail continues to arrive each day, making the backlog of correspondence difficult to dwindle down. At one time during the summer, it was estimated that approximately 12 million pieces of unopened mail sat in trailers outside IRS facilities.

Although the agency was struggling to process its incoming correspondence, balance due and late payment notices were still being sent to taxpayers, resulting in complaints and confusion from those who received notices but had already sent in payment. The IRS is urging taxpayers not to cancel their checks and allow them more time to process the payments, stating that any payment would be posted as the date received and not the date the agency began to process the payment. In short, as long as the check does not bounce and is not cancelled, interest and penalties will still be avoided if the payment was paid on time.

The IRS is dealing with higher than normal call volumes and longer wait times. All of these issues culminated in Representative Richard Neal (D-Massachusetts), chair of the House Ways and Means Committee, asking the IRS to stop mailing balance due notices to taxpayers. He also urged the agency to ensure penalties and interest would not be charged to those affected by the mail backlog.

On Friday, August 21^st, the IRS responded by releasing this statement, announcing it would temporarily stop sending three balance due notices (CP-501, CP-503, and CP-504) while it sorts through the backlog of mail, which is estimated to still be in the millions. These are follow-up notices that are automatically mailed to taxpayers that did not respond to the first notice, CP-14. Although this policy change was announced late last week, the IRS warned that some previously scheduled notices may still hit mailboxes over the next few weeks.

The IRS has advised taxpayers to avoid calling their support lines at this time, as they are still experiencing high call volumes and long wait times. They suggested taxpayers visit the IRS website linked here for options to make payments other than by mail in the future. Payments may still be made by mail as well.

If you have questions regarding this information, please contact our team. We are always here to help.

On August 8th, President Trump signed a total of four Executive Orders to provide further Coronavirus relief. The orders provided enhanced unemployment payments, student loan payment relief, eviction suspensions, and, most notably, a deferral of payroll taxes.

Payroll tax, or more frequently known as employment tax, is comprised of 6.2% Social Security tax and 1.45% Medicare tax. The order’s deferral will be applied toward the employee’s portion of Social Security tax withheld and for an employee’s pretax wages or compensation covering any biweekly pay period of less than $4,000. This deferral will be held without penalties, interest, or any additional tax imposed on the employer or employee.

While this does provide some assistance to taxpayers since Congress has come to a standstill on relief bill negotiations, a deferral is just a postponement of taxes owed. In short, the deferred taxes will still have to be paid if no further action is taken to eliminate them altogether. The deferral is for the withholding, deposit, and payment of these taxes from September 1, 2020 through December 31, 2020.

The Treasury is expected to issue guidance on implementation of the order as there are many outstanding questions surrounding it. The U.S. Chamber of Commerce and the AICPA are just two major organizations calling for further clarification on the order and its provisions for payroll tax deferral. Some of these issues include:

• Eligibility to elect this deferral
• Who is responsible for repayment of the deferred taxes
• Payment deadlines for the taxes due
• How payment will be collected
• How fluctuating salaries and bonuses are accounted for with the order
• Short-term and seasonal worker payroll
• How to handle the deferred taxes when employees change jobs during the defined period

We are closely monitoring this situation as more guidance is released. Please contact your Scheffel Boyle team member with questions. We are always here to help.