COVID-19 virus outbreak & the U.S. federal tax payment extension

This message comes at an unsettling time, as we navigate through unchartered waters with the COVID-19 pandemic virus outbreak and the related efforts to contain the spread. There is much turmoil in society related to the public health concern and the weakened economy of battered industries and lost jobs.

To ease the pain to taxpayers, the U.S. Treasury Department announced they are extending the U.S. federal income tax payment deadline by 90 days to July 15. This payment deferral is limited to $1 million for individual taxpayers and $10 million for corporations.  These eligible taxpayers can pay their taxes by July 15 and avoid late payment penalties and interest.

The relief applies to federal income and self-employment tax payments due on April 15. This includes tax year 2020 first quarter federal estimated income tax payments normally due on April 15. It appears to us that certain other taxes such as the Net Investment Income Tax computed on the federal income tax return may not qualify for the relief. As such, if a taxpayer happens to have high income that includes passive income, then there may still be late payment interest and penalties computed on the net investment income tax liability due.

The relief postpones the late payment penalty and late payment interest until July 15. The Treasury notice does not provide relief from the late filing penalty. As a result, taxpayers are still required to file an extension beyond the initial due date to avoid the late filing penalty. Late filing penalty relief is viewed by the CPA industry as necessary to truly ease the burden on taxpayers and tax practitioners. As such, we are working with the American Institute of Certified Public Accountants (AICPA) to petition the Treasury Department to expand the relief. If granted, this will allow the avoidance of extensions to be filed by April 15. Regardless, if relief is not granted, we will file any necessary extension form with the IRS on your behalf if it’s needed to obtain more time beyond the quickly approaching April 15 filing deadline.

Taxpayers that do not get to enjoy this income tax payment deferral are estates, trusts, and corporations with non-calendar year ends. In these cases, taxpayers would need to utilize the reasonable cause relief provisions to abate the late payment penalties and interest.

Lastly, please note that all our comments thus far has related to the federal income tax. Each state has their own laws governing tax payment and filing deadlines. Many states are following the federal government’s lead and are enacting the same or similar relief provisions. This is constantly evolving, so please check here for the most recent developments of specific state tax payment relief.