As a COVID-19 relief measure, the IRS has postponed many of the usual federal tax filing and payment deadlines, along with the deadlines for taking certain other tax-related actions. Generally, deadlines for federal income tax return filing and payments that would otherwise fall on or after April 1 and before July 15 have been postponed to July 15. The postponement applies to certain other deadlines as well. This relief, while welcome, has created confusion. Here’s what individuals and business owners should know to manage their tax calendars through July 15.
Deadlines for Individual Taxpayers
Assuming you use the calendar year for tax purposes (as most individual taxpayers do), July 15 is the revised deadline for the following five actions:
- Filing your 2019 personal federal income tax return (Form 1040),
- Paying what you owe with your 2019 personal federal income tax return,
- Paying your first and second quarterly estimated federal income tax installments for the 2020 tax year,
- Making a traditional IRA or Roth IRA contribution for your 2019 tax year, and
- Making a Health Savings Account (HSA) contribution for your 2019 tax year.
If you don’t pay what you owe by July 15, the government will start charging interest on the shortfall at a current annual rate of 3%. (Note, this rate can change every quarter.) Plus, if you fail to pay your remaining 2019 personal tax obligation, you’ll be charged a failure-to-pay penalty of 0.5% per month on the shortfall (up to a cumulative 25% of the shortfall). The interest charge and penalty go away as soon as you pay up.
Important: If you don’t use a calendar year for federal income tax purposes, ask your tax advisor if any COVID-19 deadline relief is available to you.
Deadlines for Owners of Pass-Through Businesses
The new July 15 deadline also helps individuals who use the calendar year for federal income tax purposes and own interests in so-called “pass-through” businesses, including:
- Sole proprietorships,
- Single-member limited liability companies (LLCs) treated as sole proprietorships for tax purposes,
- Multi-member LLCs treated as partnerships for tax purposes, and
- S corporations.
For example, Joe is a member in a multi-member LLC that’s treated as a partnership for tax purposes. Like almost all individuals, Joe uses the calendar year for tax purposes. The normal April 15 deadline for filing his 2019 personal federal income tax return (Form 1040) is postponed to July 15.
Joe can also defer paying any federal income tax (including any self-employment tax) that’s still owed for the 2019 tax year until July 15. The normal payment deadline was April 15.
Finally, Joe can defer his first and second quarterly estimated federal income tax installments for the 2020 tax year until July 15. The normal deadlines for those payments would have been April 15 and June 15.
All this relief is automatic. Joe doesn’t need to submit anything to the IRS to take advantage, and he won’t owe any interest or penalty if he does.
Important: If you don’t use the calendar year for federal income tax purposes, consult your tax advisor for COVID-19 deadline relief that might be available to you.
Deadlines for Business Entities
The July 15 deadline can also apply to business entities. Here, the term “business entity” refers to:
- C corporations,
- S corporations,
- Partnerships, and
Extending Federal Income Tax Returns Past July 15
As this was written, you must follow the normal procedures to extend federal income tax return filing deadlines past July 15. For example, you can extend your 2019 personal federal income tax return to October 15 by filing Form 4868 with the IRS by July 15. Business entities can also extend their federal income tax returns past July 15, if a further extension is allowed, by filing Form 7004 with the IRS by July 15.
Important: Extending a return past July 15 does not extend the due date for paying any tax that will be due with that return when it’s eventually filed. You could still owe interest and penalties for taxes not paid by the July 15 deadline.
For example, Red Co. is a C corporation that uses the calendar year for tax purposes. The normal deadline for Red to file its 2019 corporate federal income tax return (Form 1120) is April 15, 2020. That deadline has been postponed to July 15, 2020.
The normal April 15 deadline for paying any federal income tax that’s owed for Red’s 2019 tax year is also postponed to July 15.
Finally, the normal deadlines for Red to make its first and second quarterly estimated federal income tax installments for the 2020 tax year are April 15 and June 15. Both deadlines are postponed to July 15.
Some business entities use fiscal (noncalendar) tax years that don’t end on December 31. The revised July 15 deadline can potentially apply to them too, for federal income tax return filings and federal income tax payments that would otherwise be due on or after April 1, 2020, and before July 15, 2020.
For example, Green Co. is a C corporation that uses an August 31 tax year-end, because its business is seasonal. The original due date for Green to file its federal income tax return (Form 1120) for the tax year that ended on August 31, 2019, was December 15, 2019. However, the owner extended the due date to May 15, 2020. Because that date is on or after April 1 and before July 15, the deadline for filing Green’s federal income tax return is postponed to July 15, 2020.
The COVID-19 deadline relief is automatic. Red doesn’t have to submit anything to the IRS to take advantage of the tax filing and payment relief, and Red won’t owe any interest or penalty if it does. As for Green, it qualifies for tax filing relief without having to submit anything to the IRS, and no penalty will apply if Green takes advantage of that relief.
Deadlines for Other Federal Tax Return Filings and Payments
IRS Notice 2020-23 grants the same July 15 deadline relief for many other federal tax return filings and payments that would otherwise be due on or after April 1, 2020, and before July 15, 2020. Examples include:
- Federal income tax returns for trusts and estates (Form 1041) and federal income tax payments owed by trusts and estates,
- Federal estate tax returns (Form 706) and federal estate tax payments owed by estates,
- Federal gift tax returns (Form 709) and federal gift tax payments owed by gift givers,
- Quarterly estimated federal income tax payments due with various IRS forms.
This is not a complete list of federal tax filings and federal tax payments that can be postponed to July 15. Contact your tax advisor for the full details.
This relief is also automatic. You don’t need to submit anything to the IRS to take advantage, and there’s no penalty if you do.
Deadlines for Paying Deferred Federal Payroll Taxes
Thanks to a provision included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, your business can defer paying certain federal payroll taxes. This privilege applies to the employer’s 6.2% share of the Social Security tax component of FICA tax owed on the first $137,700 of an employee’s 2020 wages.
The deferral privilege applies to federal payroll tax deposits and payments that would otherwise be due during the deferral period. The deferral period began on the March 27, 2020 (the date the CARES Act became law) and will end on December 31, 2020.
The deferral privilege is available to all employers (small and large) for eligible payroll taxes on wages paid to all employees, including wages paid to owners who are employed by their corporations. There’s no requirement to show that the business has been adversely affected by the COVID-19 crisis.
A business must pay in the deferred payroll tax in two installments:
- 50% of the deferred amount by December 31, 2021, and
- The remaining 50% by December 31, 2022.
Important: The IRS will revise Form 941, “Employer’s Quarterly Federal Tax Return,” starting with the version for the second quarter of 2020, to allow employers to take advantage of this payroll tax deferral relief.
Deadlines for Paying Deferred Federal Self-Employment Taxes
In addition, self-employed people can defer half of their liability for the 12.4% Social Security tax component of the self-employment (SE) tax for the deferral period, which began on March 27, 2020, and will end on December 31, 2020.
For federal income tax purposes, the following are generally classified as self-employed individuals:
- Sole proprietors,
- Owners of single-member LLCs who are treated as sole proprietors for tax purposes,
- Partners, and
- LLC members who are treated as partners for tax purposes.
The 12.4% Social Security component of the SE tax hits the first $137,700 of 2020 net SE income. Deferred SE tax must be paid in two installments:
- 50% of the deferred amount by December 31, 2021, and
- The remaining 50% by December 31, 2022.
Time Is Running Out
July is right around the corner. If you or your business has taken advantage of the COVID-19 federal filing and payment deferral opportunities, it’s time to contact your tax advisor about filing any outstanding returns (or filing extensions for those returns) and paying taxes that are due by July 15.
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