IRS Details 90-Day Extension for Tax Payments

On March 17th, Treasury Secretary Steven Mnuchin announced during a White House briefing that the IRS will offer an automatic extension of the April 15th deadline and will waive interest and penalty charges for 90 days for Americans who owe up to $1 million in taxes in response to the COVID-19 (Coronavirus) outbreak.

On March 19th, Iowa Director of Revenue Kraig Paulsen followed suit and signed an order to extend the filing and payment deadline for several state tax types, including income tax to a new deadline of July 31, 2020.

The IRS announcements came with very few details, leaving many unanswered questions. The IRS has since provided some guidance on the federal extension.

Initial reports suggested the extension was only available to individuals, the notice appears to also allow trusts and estates to use the tax deferral. C corporations are also able to postpone up to $10 million of income tax payments to the July 15, 2020 date.

Regardless of filing status the $1 million deferral limit applies for all individuals.

Limitations on the Deferral

• Currently the deferral does NOT apply to returns, extensions, or information returns. You should continue to provide information to your accountant so they can get your return prepared by the April 15th deadline.
• The deferral also does NOT apply to fiscal year-ends. The deferral only applies to 2019 tax return payments and 2020 estimated payments that are due on April 15th. If you have a fiscal year end estimated tax payment due on April 15th, you are not eligible for the deferral.
• While the federal deferral applies to 1st quarter estimated tax payments (Iowa has chosen NOT to extend the deadline for 1st quarter estimated payments), the deferral does NOT apply towards 2nd quarter estimated tax payments that are due on June 15, 2020.
• The deferral only applies to federal income taxes. It does NOT apply to state taxes (although, like Iowa, your state may choose to also have a deferral), it also does NOT apply to payroll, gift, estate or excise tax.
• The deferral does NOT apply to IRA contributions that are due April 15th.
• If you plan on filing an extension, you will still need a reasonable estimate of your 2019 tax liability to report on the form. You won’t need to pay that estimate with the extension like prior years, but you will need a reasonable estimate of your liability.
• The eligible threshold amounts for deferral are considered on an aggregated basis. Meaning if you have income liability for 2019 and estimated tax payment for 2020, you can only defer up to $1 million on a combined basis.

While the 90-day payment deferral is great news, the deadline to file your tax return is still April 15th. You should coordinate with your accountant to get your taxes filed and determine your tax requirements for federal and state.