The IRS is providing special tax relief to victims of Hurricane Irma, similar to relief provided to Hurricane Harvey victims in Texas and parts of the Gulf Coast. The relief is available to anyone in areas designated by the Federal Emergency Management Agency (FEMA), which includes parts of Florida, Puerto Rico, and the Virgin Islands. More localities may be added and taxpayers in those areas will automatically receive the same filing and payment relief. More information about IRS disaster relief and eligible localities is available on the disaster relief page of the IRS website.
The IRS extended various tax filing and payment deadlines that started on September 4, 2017 in Florida and September 5, 2017 in Puerto Rico and the Virgin Islands. Individuals and businesses will now have until January 31, 2018, to file returns and pay taxes that were due during this period. These extensions include the September 15, 2017 and January 16, 2018 deadlines for quarterly estimated tax payments. For individual tax filers, it includes 2016 income tax returns that received an extension until October 16, 2017. Tax payments related to 2016 returns, however, are not eligible for this relief since they were originally due on April 18, 2017.
The extensions affect a variety of business tax deadlines as well, including the October 31 deadline for quarterly payroll and excise tax returns. Businesses with extensions have additional time, including calendar year partnerships with 2016 extensions that end on September 15, 2017 and calendar year tax-exempt organizations with 2016 extensions that end on November 15, 2017. The IRS is also waiving late deposit penalties for federal payroll and excise tax deposits that are due during the first 15 days of the disaster period.
The IRS announced that it will ease loan and distribution rules for 401(k)s and other employer-sponsored retirement plans to help victims of Hurricane Irma and their family members. Using streamlined loan procedures and liberalized hardship distribution rules, retirement plans can provide relief to employees and certain members of their families who live or work in disaster areas affected by Hurricane Irma. Employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules as well. While IRA participants are still prohibited from taking out loans, they may be entitled to receive distributions under the liberalized rules.
The IRS also loosened procedural and administrative rules that usually apply to retirement plan loans and hardship distributions. Under the new rules, eligible retirement plan participants can access their money more quickly and with less red tape. In addition, employees won’t be subject to the six-month ban on 401(k) and 403(b) contributions that usually applies to employees who take hardship distributions.
Under the new rules, Hurricane Irma victims will be able to take hardship distributions or borrow up to the specified statutory limits from their retirement plans. Someone living outside the disaster area will also be allowed to take out a retirement plan loan or hardship distribution and use it to assist a family member (son, daughter, parent, grandparent, or other dependent) who lived or worked in the disaster area. To qualify for this relief, hardship withdrawals must be made by January 31, 2018.
Plans do not have to follow the usual rules that apply to hardship distributions, allowing distributions, for example, for food and shelter. Requirements about documentation and amending plans to allow for the hardship distributions have also been relaxed under the new rules.
The tax treatment of loans and distributions remains unchanged. Under regular rules, retirement plan loan proceeds are generally tax free if repaid within five years or less and hardship distributions are generally taxable and subject to a 10-percent early withdrawal tax.