After U.S. Treasury Secretary Steven Mnuchin's announcement that the deadline for paying federal income taxes would be extended, the IRS published Notice 2020-17 on March 18 outlining the details. The IRS notice follows up on President Trump's Emergency Declaration that, among other things, instructed Mnuchin to provide relief from tax deadlines for taxpayers adversely affected by the coronavirus (COVID-19) pandemic.
On Friday, March 20, Mnuchin made the announcement the 2019 income tax filing deadline will also be moved to July 15, 2020 from April 15, 2020. Now, the federal government is stating you don’t have to file a return by April 15; Tax Day is now being considered July 15.Postponed Payments and Returns
Under the notice, the due date for making federal tax payments or filing your returns is postponed to July 15, 2020.
According to the notice, individuals—regardless of filing status—may defer up to $1 million in tax payments due on April 15, 2020. In other words, the tax limit applies to a single individual and to married individuals filing a joint return. The $1 million threshold also applies to trusts and estates. For consolidated groups, and C corporations that do not join in filing a consolidated return, relief is granted up to $10 million in tax payments due on April 15, 2020. According to Treasury Secretary Steven Mnuchin, this delay will free up $300 billion of liquidity in the economy.
The relief is limited to federal income tax payments due on April 15 for the 2019 tax year and federal estimated income tax payments for the 2020 tax year that are due on April 15. It includes tax payments on self-employed income.
Penalties and Interest
The 90-day deferral is automatic, meaning taxpayers may delay paying their federal income tax or filing their return for up to 90 days, and the IRS will not assess penalties or interest on payments made during the three-month deferral period. Interest and penalties on unpaid balances will begin to accrue on July 16, 2020. However, any amount of unpaid federal income tax in excess of the thresholds listed above ($10 million or $1 million) will begin to accrue interest and penalties on April 15 and during the deferral period.
Taxpayers who find themselves subject to such penalties or additions can seek reasonable cause relief for a failure to pay tax. They also can seek a waiver to the penalty for a failure to pay estimated income tax (the latter relief generally is limited to individuals and certain trusts or estates; it’s not available for corporations or nonprofits).
This relief applies only to federal income tax payments due for a taxpayer’s 2019 tax year, including tax on self-employment income, and Federal estimated income tax payments due on April 15, 2020 for the 2020 taxable year. The dollar amount thresholds ($1 million for individuals and $10 million for corporations) apply in the aggregate to all the above types of federal tax payments. For example, if an individual taxpayer owes $750,000 in federal income tax for the 2019 tax year and $400,000 also is due in estimated federal income tax for the first quarter of 2020, only the first $1 million is eligible for relief from penalties and interest if paid between April 15, 2020 and July 15, 2020.
Bear in mind, states aren’t necessarily following suit regarding state income tax payments (although many states have announced their own COVID-19 tax relief). The American Institute of CPAs (AICPA) is keeping an updated list of state tax developments and extensions.
Other April 15 Deadline Information
UPDATE 3/20/2020 – U.S. Treasury Secretary Steven Mnuchin announced on March 20, 2020, extending the filing season from April 15 to July 15. The change will match the federal income tax payment date along with the return filing date. More information will be provided once we receive official guidance.
While the deadline for paying your 2019 tax bill has been postponed, if you are expecting a return you are still expected to file by April 15. All individual tax returns (Form 1040) should be submitted by this date OR an extension filed for six months by completing Form 4969. You can also meet this deadline by creating a payment plan with the IRS (options can be found on the IRS website).
April 15 is also the deadline for making contributions for the 2019 tax year to traditional IRA, Roth IRA, Health Savings Accounts (HSAs), SEP-IRA or solo 401(k) accounts. Filing an extension can delay the funding of a SEP-IRA or solo 401(k) for tax year 2019, if you requested an automatic extension of time to file. Traditional IRAs, Roth IRAs, and Health Savings Accounts are not afforded the additional time to fund for 2019 as those contributions must be done by April 15, 2020.
Gift tax returns (Form 709) and estate and/or trust income tax returns (Form 1041) are also due to be filed by the traditional April 15 deadline; should you need more time to file your Form 1041, you can file for a five-month extension (Form 7004).
Should You Wait to File?
KerberRose recommends if you are able to file and make payments, please do so. However, if outstanding circumstances caused by economic and/or social burdens of the coronavirus pandemic are particularly troubling to you or your business, it might be best to accept the 90-day grace period.
With every tax season, there are a new batch of scammers waiting to take advantage of new events to trick consumers, and coronavirus scammers are no different. Any delay in filing will provide opportunities for scammers to file falsified tax returns. If you are a victim of identity theft, the process to verify one’s identity and your claim to a refund can take months. The IRS will never call you demanding immediate payment or threaten calling law enforcement; the IRS will first send you a letter if you are behind on your tax payments. If you receive a phone call claiming to be from the IRS and they as you to share your personal information, hang up and report it to the IRS.
For more information on how to spot a scammer pretending to be from the IRS, check out this blog post.
Turn To Us With Questions
Federal measures to mitigate the economic effects of the COVID-19 pandemic continue to roll out. We can help you stay on top of these developments and chart the best course forward
At KerberRose, our clients come from a variety of backgrounds and we make a point to address needs on an individual and ongoing basis, especially in light of recent events. It’s a good idea to talk with your KerberRose advisor and become familiar with the deadlines that apply to you as a specific taxpayer. If you still have questions regarding the extended deadline, contact a KerberRose trusted financial advisor today.