The US Treasury Secretary, Steve Mnuchin, announced that taxpayers in the US have three months to file and pay their taxes. The news arrived last Friday, March 20, 2020.
The new deadline is July 15, 2020. All 2019 tax bills have to be paid by that date. Can individuals and businesses defer their taxes? Do they get a limited extension? And, more importantly, is there a deadline for filing an extension?
The tax payment deadline in the US is on April 15. By that time, everyone should pay their taxes to avoid interest charges and penalties. At least this is how it should have been. The Coronavirus pandemic doesn’t only have the potential to affect our health, but the world economy as well.
Due to the slowdown, self-isolation, and social distancing, many people are not working. Some of them are on the way to losing their jobs. The US Government decided to step in and give a helping hand.
According to the Inquirer, Forbes, Dallasnews, and Fortune, the tax payment due date is delayed past the April 15 deadline. The US Treasury announced that the taxpayers would benefit from a 90-day extension. The extension also applies to those filing State taxes.
Here is a link if you want to watch a video of a summary of the press conference when the US Treasury Secretary Steven Munchin announced the delay in US tax payment practices. The two IRS Notices that might interest you followed just a few days after the conference, the Notice 2020-17 and Notice 2020-18.
The new deadline is July 15, by which all taxpayers have to pay their taxes. There is good news for taxpayers who won’t be able to pay what they owe by July 15. The option to request an extension is still available. If you think that you belong to this group of people you should visit the IRS official website for more information on filing the request for an extension.
With tax returns, deadlines, and new government recommendations and measures regarding COVID-19, you can easily get confused. This extension is a good thing as it gives you an extra three months to pay taxes.
How do you know if you owe income tax with your tax return? You can easily check this on your own.
The officials urge Americans to pay their taxes before the April 15 deadline. Everyone who is able to make tax payments due to the initial deadline will provide help to the US economy. This is really important at the moment as it will help cushion the Covid-19 blow and maintain economic stability.
Everything You Need To Know About the Tax Payment Delay
How does this extension play along with your financial practice? Essentially, nothing changed. If you are financially stable and can afford to pay the taxes, you can make your payment before the standard deadline of April 15.
On the other hand, you can consider leveraging the payment delay. The most common reasons people will postpone their tax payments include:
- Saving cash during COVID-19 to cover unexpected expenses
- Make investments with that would otherwise go into the tax system
- Avoid paying interest rates and penalties
Moving the Tax Day from April 15 to July 15 has two goals. The first is to (a) help people in hard financial situations avoid paying interest rates and facing penalties because they can’t afford to pay their taxes before April 15. And, the second goal is to (b) mitigate the potential financial blow of Covid-19.
The numbers of confirmed cases of COVID-19 continue to increase in the US. The tax payment delay has been introduced as an IRS response to the Covid-19 outbreak in the US. The President of the United States issued an Emergency Declaration under the Emergency Assistance and Robert T. Stafford Disaster Relief Act.
The Emergency Declaration states that the payment delay is there “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, as appropriate, pursuant to 26 USC 7508A(a).”
Quick Covid-19 Fact Check
COVID-19 is the official name for the disease caused by the Sars-CoV-2 virus. The virus has proved to be highly infectious. According to the Centers for Disease Control and Prevention (CDC), as of July 12, 2020, there are 3,238,219 confirmed cases of Covid-19 and 135,953 cases of death caused by COVID-19 in the US. Globally, there are over 12 million confirmed cases and half a million dead.
Who is eligible for the relief? The Emergency Declaration issued by the President of the United States outlines that any person with a federal income tax payment due April 15, 2020, is eligible for relief.
You should also know that the IRS has set the limit to the tax amount you can defer. Individuals can defer up to $1 million. Corporations, on the other hand, can defer up to $10 million.
If you, as an individual who owes more than $1 million in taxes, you will have to pay the taxes. Let’s say you have to pay $1.5 million. You must pay a $500,000 tax before April 15 and pay the rest of the taxes on July 15. The same applies to corporations. Only corporations can carry $10 million in tax debt and pay it on July 15.
The amounts due for tax payment initially scheduled for April 15 will remain the same. Additional tax obligations won’t add on top. Are you wondering what will accrue on tax in addition to the amounts at the moment? Here is a checklist of the things that won’t affect the initial amount of the tax owed:
- Additions to tax
The relief applies to:
- Federal income tax payments. This also includes the payments of tax on self-employment for the income for 2019.
- Federal estimated income tax payments, or better, tax on self-employment income for 2020.
You should know that the relief doesn’t apply to any other type of federal tax.
The Payment Deadline is Not The Same as Filing Deadline
This news can easily confuse you and leave you believing that you should do nothing but wait for July 15 to pay your taxes. The IRS was very pristine about making the difference between tax payment delay and filing deadline.
The tax-return filing deadline is still April 15. If you want to get a refund from the IRS, you should file your tax return as soon as possible. Do it immediately, you will get a response sooner, and in the response, you will be able to find out how much you owe in taxes.
If you don’t owe any taxes with your tax return, the IRS will not punish you for not filing it on time. There are no penalties or interest rates if you are late with filing an individual tax return when you owe nothing.
Meanwhile, the IRS will continue to process returns. It will also keep on issuing refunds. Bear in mind that it usually takes 21 days for the IRS to process your documentation and send a response. If you don’t know whether you have or don’t have taxes to pay, file your request today so that you can avoid paying penalties and interest rates.
But, if you owe taxes and you are late with filing an individual tax return, you will be penalized. The penalty is not the same for everyone. It will depend on the amount of the taxes you owe at the moment of missing the filing deadline.
The IRS, though, offers the penalty calculation on its official website. The starting point of the penalty calculation is the “5% of the unpaid tax required to be reported”. But it can grow to a substantial amount since it will be charged each month the return is late. This goes up to 5 months.
While the tax return filing deadline is still April 15, the taxpayers who are not able to file a tax return can still avoid paying penalties and interest. The Treasury also granted a 90-day extension for filing federal taxes. But this convenience doesn’t apply automatically. If you want to benefit from the extension, you will have to officially file the request. You can find all the relevant information on the IRS website.
The Estimated Tax Payments Could Potentially Get an Extension Too
Estimated tax payments are also subject to new developments in the US. Subjects who have to make estimated tax payments are usually those:
- Withholding from a salary or their supplemental wage income is too low
- Who are self-employed
- With substantial income from sources with no withholding (capital gains, dividends, real estate sales)
These individuals are required to pay taxes valued at 90% of their expected tax bill or taxes valued at 100% of last year’s taxes. The due date for estimated tax payments this year is April 15. If you are late with estimated tax payments or you make an underpayment, you are subject to penalties.
At the moment, the IRS has not postponed the due dates for the estimated tax payments. But the good news is that the IRS delayed penalties for those who don’t make estimated tax payments by April 15. While this is not defined as an extension, it definitely has characteristics of one because there are no penalties or interest charges.
Tax Filing Delay and How to Improve Your Finances
All of this brings us to two questions:
- How does the tax filing delay affect you?
- Is there anything you can do to improve your finances during the COVID-19 induced recession
First of all, if you don’t know if you owe any taxes with your tax return, don’t gamble. Head straight to the IRS website and proceed with the tax-return filing. The deadline is still April 15, and if you do owe tax with your tax return and fail to pay, you will face penalties, as we already discussed.
Secondly, the deadline extension is another financial mechanism meaning that you will have to activate it if you need it. You need to request a filing extension if you can’t complete your tax return by the initial due date of April 15.
Bear in mind that the extension only applies to the filing of your tax return. If you owe any other tax, you will still have to pay and do so by the IRS filing deadline. Otherwise, you will have to pay any accruing penalties and interest charges.
If you are unable to afford to make a full payment to pay off your entire federal tax now, it would be a good time to file for an extension. The IRS has waived penalties and interest on tax payments. You can save cash and make the payment in full when you have enough money. This way, you won’t end up wasting your hard-earned money on interest and penalties.
Since this only applies to federal tax, you will need to check the situation for state tax filing on the official website of your state. Some states have joined the tax due date extension relief initiative, including California and Connecticut. You can check the status for your state on the website of The American Institute of Certified Public Accountants.
IRS’s move to introduce a tax filing deadline extension affects both individuals and corporations. It can help individuals completely avoid interest and penalties. While it can do the same thing for corporations, it will do so much more to prevent or at least slow down the Coronavirus recession. Corporations will be able to use the cash to survive these hard times and reduce the number of employees they have to cut off.