Taxpayers May Delay Both Filing Tax Returns and Paying Some Taxes for 90 Days
Q: Congressional and Treasury Action to Date: What have Congress and the Treasury Department done in response to the COVID-19 crisis so far that may be of interest to businesses? (April 22)
A: In early March, Congress passed and the president signed H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act. That legislation provides for $8.3 billion in emergency funding for federal agencies to respond to the COVID-19 threat. It includes $2 billion to the Biomedical Advanced Research and Development Authority (BARDA) for vaccine research, $1.3 billion to the Centers for Disease Control and Prevention (CDC), and $20 million to the Small Business Administration (SBA) Disaster Loans Program to help certain small businesses affected by the crisis.
On March 14, 2020, the House passed H.R. 6201, the Families First Coronavirus Response Act (FFCRA). That legislation passed the Senate on March 18, 2020, and was signed by the president the same day. The FFCRA provides for free diagnosis testing for COVID-19, strengthens unemployment benefit programs and certain food assistance programs, and expands paid leave in limited situations. With respect to paid leave mandated by the FFCRA, the legislation includes a new quarterly payroll tax credit intended to help employers pay for mandated paid leave. For details regarding the FFCRA, please read our alert Families First Coronavirus Response Act Provides Tax Credits in Limited Circumstances for Paid Sick and Family Leave.
Both the House and Senate passed CARES Act legislation the week of March 23, 2020, and President Trump signed the Act into law on March 27, 2020. View our alert President to Sign $2 Trillion CARES Act With Significant Tax and Workforce Relief for Businesses and Individuals for more information.
Q: Deferring Federal Tax Payments: May corporations, partnerships, individuals, trusts, estates and associations postpone both the payment of U.S. federal income taxes due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, including Q1 and Q2 2020 estimated tax payments? (April 22)
A: Yes. As specified in Notice 2020-18 (which superseded Notice 2020-17) and Notice 2020-23, any corporation, partnership, individual, trust, estate or association that is affected by the COVID-19 emergency may postpone until July 15, 2020, payment of all U.S. federal income taxes (including payments of tax on self-employment income) otherwise due on or after April 1, 2020, and before July 15, 2020, in respect of the 2019 taxable year, including all U.S. federal estimated income tax payments (including payments on self-employment income) due on April 15, 2020, and June 15, 2020, in respect of the 2020 taxable year. No interest, penalties or additions to tax will be due with respect to any postponed payments made by July 15, 2020. See a copy of Notice 2020-23 for a complete list of applicable tax returns and tax payments.
Q: Filing of Federal Tax Returns: Must corporations, partnerships, individuals, trusts, estates or associations file U.S. federal income tax returns due to be filed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, before July 15, 2020? (April 22)
A: No. The due date for the filing of U.S. federal income tax returns of corporations, partnerships, individuals, trusts, estates and associations that are affected by the COVID-19 emergency that otherwise would be due on or after April 1, 2020, and before July 15, 2020, has been postponed to July 15, 2020, in accordance with Notice 2020-23. No interest, penalties or additions to tax will be due with respect to the filing of any such U.S. federal income tax returns made by July 15, 2020. Moreover, no IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) or Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns) needs to be filed in connection with this postponement. See Notice 2020-23 for a complete list of U.S. federal income tax returns that are now due to be filed on July 15, 2020. Taxpayers that are due an income tax refund are encouraged to file U.S. federal income tax returns as soon as possible to help accelerate refunds.
Q: Miscellaneous Federal Items: What about Section 965 “deemed repatriation tax” installment payments and estate and gift tax payments and returns? (April 22)
A: On March 24, 2020, the IRS issued extensive FAQs expanding upon and clarifying Notice 2020-18. The IRS has updated, and will continue to update, these FAQs as additional guidance is issued. The link appears above and, among other items covered, provides that the extended filing and payment relief applies to Section 965(h) repatriation tax installment payments otherwise due April 15, 2020.
For information released by the IRS on March 24, 2020, relating to IRAs and work-based retirement plans, Health Savings Accounts and Archer Medical Savings Accounts, see our alert Families First Coronavirus Response Act Provides Tax Credits in Limited Circumstances for Paid Sick and Family Leave.
Q: Filing of State Income Tax Returns: Do state income tax returns need to be filed by their due dates? (March 20)
A: State income tax return due date statutes generally fall into two categories: (1) same date as federal return is due (e.g., Alabama) and (2) fixed date (e.g., Arizona, 15th day following close of calendar or fiscal year). Therefore, absent specific authority, a state taxing authority may not modify such due date. Given the exigencies of this situation, many states are changing their due dates (e.g., consistent with Executive Order N-25-20, California extended to July 15, 2020, the due date for individual income tax returns); you should check your specific state’s filing requirements, as some of these are changing as time passes. Many state taxing agencies have closed or limited in-person taxpayer services and are encouraging taxpayers to use electronic and online services to the extent possible. Taxpayers who are due income tax refunds are encouraged to file their state income tax returns (rather than extension requests) by the due date in order to accelerate refund payments. Automatic extensions of time to file income tax returns continue to be available under existing laws and regulations. Please check your state’s tax agency website for details regarding extension requests. A helpful summary of these details is located here.
Q: State Income Tax Payments: May I defer the payment of individual or C corporation state income taxes? (March 20)
A: The March 17, 2020 announcement by Treasury Secretary Steven Mnuchin to allow the deferral of payment of income taxes without interest or penalties applies only to U.S. federal income taxes. The payment requirements for state income taxes vary from state to state; changes are occurring daily. Some states (e.g., South Carolina) have postponed payment due dates, and others (e.g., New Jersey) intend to follow the federal lead. Please check your state’s taxation website for details about state income tax payment requirements. A helpful summary of these details is located here.
Q: Other State Tax Filing and Payment Requirement Modifications: Have states modified tax return filing and payment deadlines for taxes other than income taxes, such as sales taxes, employment taxes, property taxes, etc.? (March 20)
A: Yes. In many cases, states have extended tax return filing and payment deadlines for a wide variety of taxes, including sales taxes, employment taxes and property taxes. A helpful summary of the details of these extensions is located here.
Q: Are states planning to follow the federal lead of providing aid to assist individuals and businesses? (March 20)
A: States are generally required to balance their budgets annually, and almost every state has a June 30 fiscal year-end. Putting aside that many state assemblies have curtailed their sessions due to COVID-19, taxpayers should expect the next few months, which is typically the period when most state tax legislation is enacted, to be very busy. The COVID-19 pandemic will put a great deal of new pressure on state budgets (e.g., New York State has announced that it anticipates the COVID-19 pandemic will reduce revenue by at least $4 billion in FY 21), so now is the time to plan state tax legislative strategy.
