U.S. Treasury Secretary Steven Mnuchin announced early on Tuesday, March 17, 2020, thatÂ the IRS will let many Americans off the hookÂ with regard to taxes they owe for the 2019 tax year-at least for 90 days. The change was prompted by COVID-19, the coronavirus sweeping the country as Tax Day 2020 fast approaches.
On Friday, March 20,Â Mnuchin announced on TwitterÂ that Tax Day, the deadline for individual returns for the 2019 tax year, would be pushed from April 15 to July 15. On Saturday, March 21, 2020, the IRSÂ confirmed this on its website, stating that Tax Day 2020 is now July 15, 2020.
The Usual Late Payment PenaltiesTax payments are historically due on April 15. You must pay up by that date if you haven't had sufficient tax withheld from your paychecks, or if you haven't sent in enough in the way of quarterly estimated tax payments over the course of the tax year. The IRS will begin hitting you with interest and penalties after that date. TheÂ late-payment penaltyÂ is 0.5% of any portion of tax due but not paid by April 15, then 0.5% a month on any unpaid balance up to 25% total.
And that's just the late filing penalty. Interest will accrue as well, and the rate can change quarterly because it's the federal short-term rate plus 3%.ï»¿
When you do make a payment, the IRS applies that money to the actual tax you owe first. Your payments only go to accumulating penaltiesÂ afterÂ the balance has been eliminated.
The 2020 Payment Due DateNone of this applies in 2020, at least not for most taxpayers. Mnuchin stated on March 17, 2020, that you can defer- or postpone up to $1 million in taxes due for up to 90 days, which takes you midway through July. No penalties or interest will accrue during these three months.
The IRS isÂ notÂ deferring or waiving the tax you owe, but only interest and penalties associated with paying after April 15. You must still pay up by the end of 90 days.
This provision covers pass-through businesses, which include S corporations, sole proprietorships, and partnerships.4ï»¿Â C corporations can defer up to $10 million. And self-employed taxpayers who would normally have had to make an April 15 quarterly estimated tax payment for 2020 get a 90-day extension as well.ï»¿
Your Tax Return Is Now Also Due by July 15On Friday, March 20, 2020, the IRS announced that taxpayers will now also have until July 15, 2020, to file their tax returns.5ï»¿Â If you need more time than that, you must fileÂ IRS Form 4868Â before Tax Day to request anÂ extension of time to file. Filing the form buys you until Oct. 15. Normally, you must estimate how much you think you'll owe on that return and make payment before April 15.ï»¿
The changes for 2020 are that you have until July 15 to file and make payments of any tax due for 2019. So file your 2019 tax return or submit IRS Form 4868 by July 15, or youÂ willÂ have to pay a failure-to-file penalty, which is separate and in addition to the usual failure-to-pay penalty: 5% of the tax owed up to 25%. That's 4.5% more than the failure-to-pay penalty, so submit that return.ï»¿
The Effect on Tax RefundsMnuchin indicated that it's still business as usual at the IRS, at least as of March 17, 2020. The agency is accepting returns, and it's still processing refunds. That's another really good reason to file that return as soon as possible if you don't happen to owe the IRS any money. You won't get your refund if you only submit Form 4868 for an extension of time to file.
The COVID-19 situation changes daily, so be sure to monitor this situation as time goes on.Â
You can e-file your return andÂ request direct depositÂ of your refund to your bank account to cut down on mailing time if you're one of the millions of Americans who are unable to work and are financially affected by COVID-19. The IRS says you should receive your refund within about three weeks if you elect this option, which can be helpful if you really need that money.
Just submitÂ IRS Form 8888Â if you mail in a paper return, and the agency will direct your refund to up to three different bank accounts. Most tax preparation software will take care of this option for you if you elect to use it-no need to additionally file a Form 8888.ï»¿
Check for Revised State DeadlinesAs of March 17, 2020, at least two states-California and Connecticut-have also officially pushed back their tax deadlines. California's current deadline is now June 15, not quite as generous as the federal push-back, but nothing to sneeze at, either. And it's an extension to both file and pay any tax due.
Connecticut's extension is-so far-just for certain businesses, not individuals. It's at least 30 days but could be more depending on your type of business.
Contact your state's tax authority to find out where things stand in your area. Keep in mind that these things are changing virtually by the hour. It doesn't mean your state won't extend deadlines if it hasn't done so today. It might jump on board tomorrow, so keep checking back.