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The New Tax Deadline: Pay by July 15

Friday, March 20, 2020

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In a historic move, the Internal Revenue Service has pushed the April 15 tax-payment deadline to July 15 this year for many people who haven’t paid their 2019 taxes.

On Wednesday, the agency released details of the change in response to the coronavirus pandemic. The bottom line: People who want to delay their tax payments must submit their tax returns or another form to the IRS by April 15 to claim this benefit without risking interest or penalties. The three-month extension to pay federal income taxes doesn’t change the obligation to file returns.

In short, taxpayers shouldn’t blow off their April 15 IRS filings just because they have heard there is a special extension this year.

Some details of the change are pending, and the IRS may clarify them in the coming days.

Here’s what we know now:

What are the changes to the tax-filing deadlines for individuals?

The IRS is extending the April 15, 2020, tax-payment deadline until July 15, 2020, for individuals who have a 2019 tax balance due of $1 million or less per return and who file a return or an extension form with the IRS by April 15. These individuals will receive three extra months to pay the taxes they owe without the penalties and interest that would normally apply.

Taxpayers who want the three-month payment extension must file either their tax return or Form 4868 with the IRS by April 15. Form 4868 is the one that filers ordinarily submit to receive a six-month extension to finish paperwork and file a complete return, and taxpayers can still use it for that purpose this year.

Here’s an example. Susan had $35,000 of income tax withheld from her paycheck last year, but she owes the IRS another $3,000 for 2019.

If Susan files her return by April 15, she has until July 15 to pay the $3,000 without interest or penalties. If she files Form 4868, she’ll have until July 15 to pay the $3,000, and she will also have until Oct. 15, 2020, to file her complete tax return.

However, the interest and penalty relief for the three-month extension doesn’t apply to all penalties. For example, if Susan owed an extra $15,000 instead of $3,000 and was underwithheld for 2019, she still would likely owe a penalty for underwithholding. She could pay it when she files; if not, the IRS will probably bill her for it.

Form 4868 can be filed either electronically or on paper. If a paper form is used, it must be postmarked by April 15.

What if someone owes taxes but doesn’t file their return or Form 4868 by April 15?

That person could owe penalties that can mount rapidly. One could be the late-filing penalty, which is as high as 5% of the tax due per month, with a maximum of 25%.

“Taxpayers and preparers need to be careful because the penalties can be truly horrible,” said Gerard Schreiber, a certified public accountant in New Orleans who specializes in disaster-related tax changes.

What does this mean for my refund?

The IRS doesn’t anticipate any refund delays. Treasury Secretary Steven Mnuchin has urged people getting refunds to file electronically soon, to get their refunds faster.

Does the three-month deadline extension mean I have until July 15 to contribute to my individual retirement account or Roth IRA for 2019?

No. The three-month extension doesn’t apply to these retirement-account contributions, so the deadline for them remains April 15.

Has the government reduced or eliminated required minimum distributions from retirement plans for 2020, as it did for 2009?

No, at least not yet.

I already filed my return and set an automatic withdrawal of my tax payment on April 15. Can I change the withdrawal to July 15?

It’s likely that you can, but check with your preparer or payment company. According to an IRS spokesman, both IRS Direct Pay and EFTPS, the electronic federal tax payment system, allow such changes.

Is there also a grace period for quarterly estimated tax payments for individuals?

Yes. Many individual filers who pay quarterly estimated taxes can delay their April 15 payment until July 15. But the amount deferred, plus any 2019 taxes that are deferred under the IRS’s new extension, cannot exceed $1 million. The IRS hasn’t yet addressed second-quarter estimated taxes, which are due June 15.

What about a tax-payment extension for corporations and for pass-through businesses, such as partnerships and S Corporations?

So-called C corporations that owe $10 million or less by April 15 can also benefit from the three-month payment deferral.

The IRS hasn’t announced relief for S Corporations and partnerships, and those returns were due March 16 for many of these businesses. The IRS is expected to address issues affecting them in the near future.

Have the deadlines changed for sending information reports to taxpayers such as 1099 and K-1 partnership forms?

No.

What’s the status of other tax deadlines, such as the 60-day limit for IRA rollovers or the last day to reply to a notice from the IRS?

The three-month extension of the April 15 payment date doesn’t alter such deadlines, but more IRS guidance may be forthcoming.

Are any states delaying tax deadlines due to the coronavirus?

California and South Carolina have already extended individual income-tax deadlines. Other states have said they would make decisions after the IRS’s official announcement. The American Institute of Certified Public Accountants is tracking state tax guidance related to the coronavirus here.

Source: Wall Street Journal

Category: Economic News, Business News

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