IRS Offers Several Relief Provisions for Victims of the Hurricanes

On September 29, 2017, the President signed H.R. 2823 which, in part, allows for emergency tax relief for victims of Hurricanes Harvey, Irma, and Maria.
 

Employee Retention Credit

Employers who conducted an active trade or business on the date the storm hit (August 23, 2017 for Hurricane Harvey; September 4, 2017 for Hurricane Irma; and September 16, 2017 for Hurricane Maria) may be eligible for an “employee retention credit.” The tax credit is equal to 40% of the first $6,000 in wages paid to each employee from the date of the storm through January 1, 2018 or through the date the business has resumed significant operations, whichever comes first.

The wages qualify whether the employee performs no services, performs services at a location other than the principal place of employment, or performs services at the principal place of employment before significant operations have resumed.
 

Tax Favored Withdrawals from Retirement Plans

Individuals whose principal residence is in one of the hurricane disaster zones can withdraw funds from a retirement plan without paying the 10% early withdrawal penalty. Generally, up to $100,000 can be withdrawn. The distribution can be included in income ratably over a 3-year period instead of including the entire amount in income in the year of distribution. Additionally, the qualified hurricane distributions may be paid back into the plan at any point during the 3-year period following the distribution.
 

Recontributing Withdrawals Taken for Home Purchases

Individuals who took a qualified distribution from a retirement plan in order to purchase or construct a principal residence in one of the hurricane disaster areas can put the money back into the retirement account if the purchase or construction fell through because of the hurricane.
 

Loans from Qualified Plans

The limit on the amount that may be borrowed from a qualified employer plan is increased to the lesser of $100,000 or the present value of the plan. The usual limits are $50,000 and one-half of the present value of the plan. The loans may be taken from September 29, 2017 to December 31, 2018.
 

Temporary Suspension of Limitations on Charitable Contributions

Cash contributions made between August 23, 2017 and December 31, 2017 to qualified charities for hurricane relief efforts are not subject to the usual 20%, 30%, and 50% of income limitations.
 

Disaster-Related Personal Casualty Losses

Personal casualty losses resulting from the hurricanes can be deducted without reducing the loss by 10% of Adjusted Gross Income. Taxpayers need not itemize their deductions to take the casualty loss. For those that do not itemize, the loss will be treated as an addition to the standard deduction.

The casualty loss can be deducted in the year in which the loss occurs or in the preceding year. This means that a victim of the hurricanes could amend their 2016 return to deduct the casualty loss and receive a refund much sooner than waiting until filing the 2017 return.
 

Special Rule for Determining Earned Income

For purposes of computing the Earned Income Tax Credit or the Child Tax Credit for 2017, a taxpayer whose principal residence is in one of the hurricane disaster areas may use the amount of earned income in 2016 if his earned income in 2017 is lower. This provision is helpful for taxpayers who may be out of work for a period during 2017 as a result of the hurricanes.
 

Extended Due Dates

Although not part of the legislation passed on September 29, 2017, the IRS is offering some additional relief to victims of the hurricanes.

• Individual taxpayers in a hurricane disaster area who had an extension of time to file their 2016 return until October 16, 2017 have until January 31, 2018 to file the 2016 return. Because all 2016 tax was due with the extension request in April, 2017, there is no relief for any tax payments outstanding for the 2016 tax year.
• Business filers in a hurricane disaster area who had an extension of time to file their 2016 return until September 15, 2017 have until January 31, 2018 to file the 2016 return.
• Quarterly estimated tax payments due on September 15, 2017 and January 16, 2018 can be paid on January 31, 2018 without late payment penalty.
• Quarterly payroll and excise tax returns Due on October 31, 2017 can be filed by January 31, 2018 without penalty.
• Calendar-year tax-exempt organizations whose extensions run out on November 15, 2017 have until January 31, 2018 to file the 2016 return.

CPAs on Your Side

Restoring normalcy in the aftermath of a devastating disaster is no easy feat. Contact Alloy Silverstein today and we can help you and your business resume business operations and review which IRS provisions pertain to your individual situation. Give us a call→