Coronavirus and its Tax Implications: A Summary from Europe & the USA
As the coronavirus sweeps across the world, governments throughout North America and Europe have been adjusting many of their financial requirements to soften the disease’s impact on their countries’ economies.
Many of these changes, ones that offer greater leeway and support to local businesses and individuals, have come in the form of tax relief or subsidies.
Below is a short summary of what has been happening in the US and the European Union.
US Delays Federal Tax Payments & Looks into Payroll Tax Cuts
Earlier this week, the US Treasury Secretary Steven Mnuchin said that all businesses and individuals would be allotted an extra ninety days to pay their federal taxes for 2019.
According to these changes, small business and individuals will be able to defer tax payments of up to $1 million from April 15th to July 15th, while corporations will be allowed the same but for figures below $10 million. Neither group will be penalized for this delay in payment.
Mnuchin, however, urged taxpayers to still file by the regular April 15th deadline as many individuals rely on their tax returns as supplemental income.
“We encourage those Americans who can file their taxes, to continue to file their taxes on April 15 because for many Americans you will get tax refunds. We don't want you to lose out on those tax refunds,” Mnuchin said.
At a state level, some states have also extended their tax filing deadlines. California, for instance, set the new deadline to June 15th, while Maryland has extended its own to July 15th.
As reported by the LA Times, this move “will give businesses and individuals nearly three more months to meet their IRS obligations, potentially lessening cash-flow issues that some businesses are facing as many people stay home and spend less money on dining out, entertainment and transportation.”
Furthermore, the Trump administration is pushing Congress to approve a payroll tax cut to benefit businesses and employees being hit hard by the coronavirus. This would include monthly contributions to Social Security and Medicare.
The idea behind this cut is to stave off a recession by putting more money in the hands of businesses and workers, curtailing layoffs and boosting household spending.
However, as pointed out by Business Insider, this cut would be little help to “those who lost their jobs because of the crisis, especially lower-income people in industries like tourism, hospitality, and dining that have been especially hit hard by the pandemic and decline in demand from consumers.”
Benjamin Willis, a Tax Notes editor and Forbes contributor, ultimately believes such tax cuts would be beneficial to the American economy.
“Tax reductions are a powerful fiscal tool, and payroll tax reductions could have a nearly instantaneous effect on businesses and wage earners at appropriate income levels through the Social Security cap of $137,700,” he writes.
Europe Braces for the Economic Impact of the Coronavirus
With prognostications suggesting that the coronavirus’ economic impact might be worst than that resulting from the 2008 financial crisis, European governments have also moved to help their economies.
Sweden, as reported by the Financial Times, has been very proactive and aggressive in its actions, “allowing businesses to defer tax payments for up to a year at a cost of more than SKr300bn (€27.5bn) to the treasury, or 6 per cent of gross domestic product.”
Source: The Financial Times
Furthermore, besides offering up 500 billion Euros in loans to struggling businesses, the German government will also allow companies to defer billions of Euros in taxes owed.
The German government said about its measures: “Due to the high degree of uncertainty in the current situation, the government has very deliberately decided to not set any limits on the volume of these measures … If there are any signs of a serious disruption to the economy, the German government ... will use all resources available to counter this forcefully.”
In France’s case, the government will provide income to workers who have lost their jobs as a result of the virus and also allow corporations to defer their tax payments, both moves that, according to the Financial Times, “are expected to be the most costly items in France’s array of measures.”
President Emmanuel Macron said earlier this week, “No French company, whatever its size, will be exposed to the risk of collapse.”
In the UK, the Johnson administration has offered “an extension of the business rate holiday announced in the Budget,” a levy that’s equivalent to a local business tax as explained by Forbes’ David Dawkins.
Stay safe and healthy everyone!