As you’ve likely seen, there is a great deal of information circulating about where we currently stand regarding the filing of federal tax forms, making federal tax payments, and the Families First Coronavirus Response Act. While information is key during this critical time, we have seen some inaccurate information. As this is a constantly evolving situation, below is a summary of key items, based on our understanding as of today.
Federal Extension Process
Treasury Secretary Steven Mnuchin announced during a March 17 news conference that President Trump has authorized him to defer up to $300 billion in tax payments. Those who owe a payment to the IRS can defer up to $1 million per individual — which would cover many pass-throughs and small businesses — and $10 million for corporations, interest-free and penalty-free for 90 days. He said taxpayers can file their taxes and will automatically not get charged interest and penalties.
We would like to clarify that as of now, the IRS is not extending the filing deadline. Instead, the IRS is delaying the deadline for paying taxes. Individuals can defer up to a $1 million tax payment for 90 days and not incur an interest or penalty. This includes tax imposed at the individual level on income that flows from a pass-through entity or a small business. Corporations can defer up to a $10 million tax payment without incurring interest and penalties.
The IRS released Notice 2020-17 and clarified that the relief granted by Secretary Mnuchin is solely with respect to Federal income tax payments related to the taxpayer’s 2019 taxable year that are due on April 15, 2020, and Federal estimated income tax payments related to the 2020 taxable year that are also due on April 15, 2020.
The sum of the payments due on April 15, 2020, which include the final payment related to the 2019 taxable year and the first quarter estimated tax payment related to the 2020 taxable year, must exceed $1,000,000 for individuals or $10,000,000 for corporations before interest and penalties would be applied starting April 15, 2020. Provided that a taxpayers April 15, 2020 payments are less than the above stated amounts, payment regarding those two items are allowed to be postponed until July 15, 2020.
As of right now, a 2019 US Individual Income Tax Return is still required to be filed by April 15, 2020. However, there is an opportunity to request a federal extension, Form 4868- Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, which will delay the requirement to file your individual income tax return until October 15, 2020. It is important to note that a federal extension only grants an extension for time to file, but not time to pay. Due to the recent announcement by Secretary Mnuchin, even with a valid federal extension being filed, the tax payments related to the 2019 individual income tax return must be paid no later than July 15, 2020.
If a federal individual income tax return or valid extension is not filed by April 15, 2020, federal penalties still exist. This includes an Internal Revenue Code Section 6651 penalty that will assess a 5 percent penalty for any month (or fraction thereof) that the tax return is not filed. The penalty is assessed on the net tax payment due and cannot exceed 25 percent. For example, assume an individual owes $10,000 in relation to their 2019 federal individual income tax return, does not file a valid extension, and does not file their tax return until July 1. The individual would not incur a late tax payment penalty because they made their payment by July 15, 2020, however, they would incur a late filing penalty of $1,500 (10,000 x 5% x 3).
As previously communicated by our CEO, Bruce Zicari, we have a robust plan in place for continuing operations without interruption in the coming months, and we are confident in our ability to provide excellent client service while ensuring everyone remains healthy and safe. Please reach out to your client service professional with any questions you may have, including how best to provide the documents needed to file your tax return as well as what is the best individual plan for you moving forward.
New York State Extension Process
At this time, the New York State Tax Department has not extended the deadline to file personal income tax or other tax returns. While a Form IT-370, Application for Automatic Six-Month Extension of Time to file for Individuals, can be filed by April 15, 2020, this only delays the ability to file a 2019 New York State individual income tax return to October 15, 2020, and not the ability to pay your taxes due to New York State. At this time, all remaining 2019 New York State tax payments are still due by April 15, 2020.
Families First Coronavirus Response Act
President Trump signed into law last night the Families First Coronavirus Response Act, which includes provisions to provide affected individuals with paid sick and family leave and provides tax credits for affected employers. The final law that was passed did include amendments that altered the original bill that was passed by the House of Representatives on March 14. The final law continues to include private entities or individual employers who employ fewer than 500 employees. However, the final law grants the Department of Labor the authority to issue regulations to exempt small businesses with fewer than 50 employees.
Many businesses are grappling to understand their responsibilities as an employer under the bill and whether or not they will receive relief from the tax credit. In order to help our clients better understand the new law, we’ve created comparison charts to highlight our understanding of the differences at this time between the final law and proposed bill that passed in the House of Representatives – see the links below:
- EMERGENCY Paid Sick Leave Act (Final Law vs. House Law Comparison)
- EMERGENCY Family Medical Leave Expansion (Final Law vs. House Law Comparison)
As you know, this is a rapidly evolving environment and we will do our best to provide consistent updates throughout this time period.
As always, we appreciate being your trusted business advisor and look forward to helping you navigate this unprecedented situation. Please visit the following page for more resources and additional updates to help you during this challenging time: https://www.bonadio.com/covid-19/.
The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.