3 Things to Know About Coronavirus-Related Tax Relief

Last week, the IRS announced it would “provide special tax filing and payment relief to individuals and businesses in response to the COVID-19 Outbreak.” In that announcement and several subsequent notices, the IRS made several announcements and recommendations about how to handle the 2020 tax season.

Here are three things everyone should know about the IRS response to the coronavirus pandemic at this point in time:

#1: The 2019 Income tax filing and payment deadlines for all taxpayers who file and pay their Federal income taxes on April 15, 2020, are automatically extended until July 15, 2020[1].

In an updated statement about the extension, the IRS said:

“This relief applies to all individual returns, trusts, and corporations. This relief is automatic [and] taxpayers do not need to file any additional forms or call the IRS to qualify.”

On July 16, 2020, penalties and interest will begin to accrue on unpaid balances, although the IRS is permitting individual taxpayers who need more time to file to request a filing extension. The IRS statement recommends using Form 4868, but also encourages taxpayers to consult their tax advisers. In some cases, the IRS stated, businesses can file for additional time as well.

#2: The extension applies only to federal income tax payments.

State tax payments are not affected by the IRS guidelines dealing with the automatic extension, although most analysts say they expect most states[2] to follow suit. You can check your state agency here.

“Taxpayers will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadlines,” the IRS noted in its public statement.

According to TaxFoundation.org, 12 states have made at least some adjustments to their filing policies in response to the IRS deferral. Alabama, Oregon, and Utah have stated they will follow the IRS with some exceptions; California, Indiana, Maryland, Oklahoma, and New Mexico set deadlines of July 15, and Virginia and South Carolina extended their deadline to June 1, 2020.

“Now that the federal decision is known, states should take immediate steps to postpone – to July 15, if possible – avoiding a burden to their own taxpayers that the federal extension was intended to relieve,” wrote the Tax Foundation’s director of state tax policy Jared Walczak[3].

#3: The IRS would still prefer you pay “as quickly as possible.”

Although the IRS is making it an option for taxpayers to delay filing their taxes, the agency pointed out that individuals who are owed a refund should “file as quickly as possible.”

U.S. Treasury Secretary Steven Mnuchin explained, “Americans should file their tax returns by April 15 because many will receive a refund. Those filing will be able to tax advantage of their refunds sooner.” He added that the extension is primarily intended to benefit taxpayers who owe money to the IRS and “ensure that hardworking Americans and businesses have additional liquidity for the next several months.”[4]

The IRS extension could result in about $300 billion of additional liquidity in the U.S. economy in the near term, Mnuchin estimated. The initial version of this initiative extended the payment deadline, but not the filing deadline. At time of publication, the IRS said that taxpayers who miss the April 15 deadline will automatically be pushed into the later deadline without filing additional forms or calling the IRS to qualify.

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[1] https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020

[2] https://www.taxadmin.org/state-tax-agencies

[3] https://taxfoundation.org/states-postpone-tax-day/

[4] https://home.treasury.gov/news/press-releases/sm948

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