Federal and some state tax authorities have responded to the Coronavirus by announcing extensions of some tax payment deadlines for most taxpayers. At BPM we are monitoring these announcements and will provide updates as additional information becomes available and as additional formal guidance is issued.
Federal Coronavirus Update
Treasury Secretary Mnuchin stated publicly on March 17, 2020 that the IRS will allow taxpayers to defer some tax payments, which would otherwise be due on April 15, 2020, for up to 90 days. On March 18, 2020, the IRS issued Notice 2020-17 to provide official guidance regarding a federal three-month tax payment postponement for federal income tax payments due April 15, 2020.
Individuals are allowed to postpone specified federal tax payments of up to $1 million and corporations are allowed to postpone specified federal tax payments of up to $10 million.
- Trust and estates, only with respect to an estate’s income taxes, are eligible for the postponement subject the $1 million cap
- For corporations, the postponements of up to $10 million for is for each consolidated group or for each C corporation that does not join in filing a consolidated return.
- Taxpayers are not required to contact the IRS or file any additional forms to qualify for the relief.
The federal tax payment postponement applies to:
- 2019 income tax payments due on April 15, 2020. Income tax payments for this purpose includes self-employment taxes due for an individual taxpayer.
- First quarter 2020 estimated tax payments due on April 15, 2020
- The total amount of tax eligible for postponement is the sum of the tax due with the 2019 tax return and the 2020 first quarter estimated tax payment.
- The maximum postponement amount for individuals is determined without regarding to filing status. For example, a single filer and a married couple filing jointly are each allowed to postpone up to $1 million of taxes until July 15, 2020.
Federal tax payments that are not postponed under the relief granted in Notice 2020-17 include:
- Payroll and excise taxes
- Gift and estate taxes
- Any taxes other than income taxes and self-employment taxes
Late payment penalties, interest, or other additions to tax will not apply to any eligible income taxes postponed under the relief granted per Notice 2020-17. Any tax payments due but not paid in excess of the amount allowed to be postponed will be subject to the normal penalties, interest, or other additions to tax for the entire period of underpayment.
Importantly, the IRS clarified that the filing due dates for any tax returns or other filings including information returns are not postponed or extended under the relief granted in Notice 2020-17. In order to receive a valid extension of time to file for 2019 tax returns due April 15, 2020, taxpayers are required file the proper extension request form by April 15. Please note, individual taxpayers can extend their 2019 Form 1040 by making a federal extension payment on or before April 15, 2020 via IRS Direct Pay with 2019 Extension selected. Businesses must file Form 7004 by the due date of their return to request an extension of time to file.
Some questions regarding the tax payment postponement:
- Are second quarter 2020 estimated tax payments, typically due June 15, 2020, eligible to be postponed until July 15, 2020? It appears from Notice 2020-17 that the tax payment postponement relief does not apply to 2020 second quarter estimated tax payments due June 15, 2020.
- How will states respond to the federal deferral allowance? Most states have not announced extensions of the tax filing or payment deadlines in response to the Coronavirus crisis. We expect that many states will piggyback, at least in part, to the IRS relief provisions.
- California has provided a broad tax payment and return filing deferral for all state tax returns and payments originally due from March 15 through July 15. Those California tax returns and tax payments are now due July 15, 2020.
- Note that earlier this week the California FTB announced an extension of the filing and payment deadlines to June 15. In response to the federal payment postponements to July 15, California has provided that its filing and payment extensions are extended to July 15.
The IRS has set up a “Coronavirus Tax Relief” page on their website. As additional information becomes available and formal guidance is issued it will be accessible on the IRS’s website at https://www.irs.gov/coronavirus.
GROCO will update this communication as additional IRS and state tax information is provided by the tax authorities and when formal guidance is issued. Please reach out to your GROCO tax advisor with any questions.