DON’T EXPECT A HOME OFFICE DEDUCTION FOR EMPLOYEES ON THE 2020 FORM 1040

A post to an email tax preparer group asked -

“Do you guys think the Government will give all these work from home W2 workers a home office deduction this year?”

My answer is NO.

Assuming that the home office in question would qualify – taking into consideration the “exclusive use” rule – why should it be allowed?  It does not cost an employee who temporarily works from home due to his "normal" office being closed anything to so do.  He, or she, does not incur any “out of pocket” expense – other than perhaps a slight increase in the electric bill.

To be perfectly honest, an employee forced to work at home is actually saving money – i.e. no commuting costs, eating lunch at home every day, and perhaps reduced dry cleaning bills for work clothing.

The traditional home office deduction for a self-employed person – remember that the home office deduction for an employee is an employee business expense and employee business expenses are no longer deductible on Schedule A – applies a percentage of all home expenses, including property taxes, acquisition debt mortgage, homeowners insurance, utilities, security, and depreciation, based on the size of the office.

These costs for an employee forced to temporarily work at home, except perhaps utilities, do not change or increase because he or she is working at home.  The mortgage payment, the insurance premium, and the home security bill are the same as they would be if the employee did not work at home.

An employee who works at home may incur additional costs for software or computer upgrades, but these expenses can, and should, be reimbursed by the employer under an “accountable plan”.

This is obviously just my opinion on the issue.  It is possible that Congress will allow some kind of modified home office deduction in certain situations, regardless of how stupid and unnecessary it is.  Congress has been known to do stupid and unnecessary things in the past.

So, what do you think?

TTFN

ANSWERS

{NOTE - UPDATED MAY 24th}

I have received several emails from clients asking about their 2019 refunds and 2020 stimulus payments, and I expect many taxpayers have similar questions.  So here are the answers.

 (1) The offices of the Internal Revenue Service were closed at the end of March due to the pandemic.  Mail sent to the IRS was not opened and manual returns were not processed.  As a result, refunds requested on manual returns were not issued.  The Service reopened its offices on April 27 and called back some employees to handle what it called “mission-critical functions” such as opening the piles of mail and processing manual returns.  However, subsequent virus-related issues indicate that the delay in processing returns, current and amended, and issuing refunds will continue. 

(2) In many cases when inquiring about the status of your 2020 stimulus payment at the IRS website you will need to enter information from your 2018 tax return.  Unless you filed your 2019 return in February or early March the information from your 2019 return is not in the IRS system.

(3) Just because the IRS cashed your check for payment of a balance due sent with your 2019 manually filed return does not mean your 2019 return has been processed.  Manual returns with payments are sent to bank lock-boxes.  The check is promptly deposited and the return is sent to the IRS for processing. 

(4) If you are receiving Social Security benefits that are directly deposited this does not mean your 2020 stimulus payment will automatically be directly deposited to your bank account.  This only applies if you are a “non-filer” – for example your only source of income is Social Security and you do not have to file a federal tax return.  The IRS will only directly deposit these payments for those who file federal income tax returns if it has the direct deposit information for a refund requested on the 2019, or more probably 2018, return.

(5) The date of mailing, or direct deposit, of your 2020 stimulus payment is based on the Adjusted Gross Income (AGI) on your 2019, or more likely 2018, tax return.  The greater your AGI the later your payment will be issued.

(6) In many cases the economic stimulus payment you received, or will receive. is calculated based on your 2018 AGI, because your 2019 Form 1040 or 1040-SR, if filed, had not been processed when the amount of the checks was calculated.  The IRS offices were closed down from the end of March until the end of April and 2019 returns were not being processed.  So, your check may be less than the actual amount to which you are entitled.  However, according to the IRS website, as of this writing, “The IRS is not able to correct or issue additional payments at this time and will provide further details on IRS.gov on the action people may need to take in the future.”

(7) The economic stimulus payment is administered via new Internal Revenue Code Section 6428.  IT IS NOT TAXABLE INCOME.  The payment will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled, based on 2019 information, when preparing your 2020 tax return next year.  If you are entitled to more than you actually received in 2020 you can claim the additional amount as a refundable credit on your 2020 Form 1040 or Form 1040-SR.  If you received more than you should have you do not have to pay back the excess.  

(8) As of this writing the deadline for filing your 2019 federal and state income tax returns, and paying any balance due, is July 15, 2020.  This has not been further extended to September, October or December.

(9) Perhaps most important – there is absolutely nothing your tax preparer can do to expedite the processing of your 2019 tax return or 2020 stimulus payment or the issuance of your 2019 refund or 2020 stimulus payment check.  Do not ask your tax preparer why you have not received your  2019 refund or your stimulus payment yet, or when you will get it.  If you want to find out about your stimulus payment go here.

Now when I receive an email question from a client, I can simply provide a link to this post.

TTFN

IRS UPDATES

Here is the latest news on the stimulus payments and COVID-19 federal tax relief -

* If you don’t file a tax return due to low income and you do not receive Social Security or Railroad Retirement benefits you can use the new "Non-Filers: Enter Your Payment Info Here" application at the IRS website to provide simple information so you can get your payment.

Go to https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here.

* The IRS will also be introducing a "Get My Payment" application at the website in mid-April to check your payment status, confirm your payment type (direct deposit or check) and enter your bank account information for direct deposit if the IRS does not have this information from your tax return.  I will let you know here when this application is available.   

* Per recent IRS Notice 2020-23, the June 15 deadline for federal estimated tax payments is postponed to July 15, and the deadline for filing an amended 2016 federal tax return to claim a refund, normally April15, is extended to July 15.

TTFN

IT'S ABOUT FEKKING TIME!

NJ has finally joined New York and Pennsylvania, and many other states, to extend the filing deadline for the NJ-1040 from April 15 to July 15.

Here is an excerpt from the joint statement by Murphy and the state’s Senate President and Assembly Speaker -

“The ongoing COVID-19 pandemic has caused hardships, financial strain, and disruptions for many New Jerseyans and New Jersey businesses.  As part of our response, we have reached agreement that the state income tax filing deadline and the corporation business tax filing deadline will be extended from April 15th to July 15th.”

TTFN

NEW YORK MAKES IT OFFICIAL

New York State has now officially extended the filing and payment deadline for state tax returns from April 15 to July 15.  Click here for notice N-20-2.

“2019 returns due on April 15, 2020, and related payments of tax or installments of tax, including installments of estimated taxes for the 2020 tax year, will not be subject to any failure to file, failure to pay, late payment, or underpayment penalties, or interest if filed and paid by July 15, 2020.”

No word from New Jersey yet.  No clue why Murphy is waiting – and no reason for him not to extend the NJ filing and payment date.

TTFN

ADDITIONAL RELIEF IN ECONOMIC STIMULUS PACKAGE

Based on what I have read, in addition to the $1,200 per taxpayer, plus $500 per dependent child under age 17, stimulus payment the economic relief package that Trump has signed into law includes the following items of interest –

(1) There is an automatic suspension through September 30, 2020 for payments of any student loan held by the federal government – a “direct loan”.  Interest will not accrue on the loan during the suspension period.

(2) For calendar year 2020 nobody will be required to take an RMD (required minimum distribution) from any individual retirement accounts (IRA) or workplace retirement savings plans (401k).  This does not affect “traditional” pensions.  This way the plan will not be forced to sell investments at a loss resulting from the virus-inspired market drop to generate cash to distribute.

(3) You can make a premature withdrawal of up to $100,000 from an IRA or workplace retirement plan for virus-related purposes without having to pay the 10% penalty.  The federal income tax on a qualified withdrawal is spread over 3 years.  You can return all or part of the withdrawal before 3 years from the date you took the withdrawal.  You qualify for the penalty exemption and special tax treatment if you, your spouse or a dependent tested positive for the virus or you experienced negative economic consequences related to the pandemic – for example from being quarantined, furloughed, laid off, having reduced hours, or being unable to work due to a lack of child care.

(4) Taxpayers who do not itemize can deduct as an adjustment to income (deduction from gross income) up to $300 in charitable contributions on their 2020 Form 1040 (or 1040-SR).  This appears not to be limited to tax year 2020.

TTFN

RECOVERY REBATE CHECK

Here is what I understand about the new check that will soon be sent to Americans.

The newly passed CARES Act to provide economic assistance during the pandemic will give many Americans a “2020 recovery rebate” check - $1,200 for single Americans and $2,400 for couples, with an additional $500 per dependent child under age 17.  The check will be based on your 2019 tax return, or if not filed your 2018 return or your 2019 SSA-1099.  It is administered via new Internal Revenue Code Section 6428.

The payment phases out once your Adjusted Gross Income (AGI) exceeds $75,000 if single or $150,000 if married. Once over those thresholds, you’ll lose $5 of your payment for every $100 your AGI exceeds those thresholds.

It will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled, again like the advance premium credit, based on 2020 information when preparing your 2020 tax return next year.  If you are entitled to more of a credit than you received you can claim the additional credit on your 2020 return.  If you received more than you should have it is unclear at this point what you would do.   

TTFN