In response to COVID-19, the US Treasury automatically extended the federal income tax filing due date from April 15, 2020, to July 15, 2020. Tax payments may also be deferred without interest and penalties until July 15, 2020. There is no limitation on the amount of the payment that may be postponed. Taxpayers do not need to file any additional forms to take advantage of the automatic extension. The IRS is urging individuals to file electronically. And, if you will receive a refund, they suggest you file now instead of waiting until July.
Some key due dates to remember:
UPDATED April 10: An earlier version of this article showed 2020 second quarter estimated tax payments due by June 15, 2020. The IRS issued a statement on April 9, 2020, that this deadline has also been pushed back to July 15, 2020.
July 15, 2020
Individual income tax returns
2020 First quarter estimated tax payments
2020 Second quarter estimated tax payments
2019 IRA / SEP IRA contributions
2019 HSA contributions
CARES Act & Economic Impact Payments
Under the CARES Act, Congress approved Economic Impact Payments. These payments are an “advance” by the US Treasury on a tax credit that will be claimed on your 2020 income tax return. Individuals can receive payments up to $1,200 with an additional $500 for each child under the age of 17. Payments will be deposited into bank accounts on record either from your tax return or social security payment. If the IRS does not have direct deposit information on file for you, a check will be mailed. The US Treasury is working on a web-based portal for individuals to provide banking information to the IRS. At this time, we don’t know when this portal will be up and running.
The IRS will use your Adjusted Gross Income (AGI) on your most recent tax return on file to determine eligibility for this payment. For many individuals this will be their 2018 tax return. If your 2018 AGI is above the threshold, but your 2019 AGI will be below the threshold, consider filing your 2019 taxes now.
Individuals with AGI up to $75,000 will receive $1,200.
Married couples with AGI up to $150,000 will receive $2,400.
For AGI higher than these amounts, the payment is reduced by $5 for each $100 above the threshold.
Your CPA will account for the Economic Impact Payment on your 2020 tax return due April 15, 2021. This return will be the true determination regarding whether you should have received an Economic Impact Payment. If you didn’t qualify based on your 2018/2019 tax return for an “advance,” you didn’t receive a payment. However, if your 2020 tax return AGI is below the threshold and you should have received a payment, you will receive a tax credit on your 2020 tax return. This might be best explained in an example:
Michael is single and was recently furloughed from his job. He filed his 2018 tax return on April 15, 2019, showing $80,000 of AGI. His 2019 tax return has not been filed because he owes $5,000 and does not have the funds to pay the tax bill. Based on the information available to the IRS, Michael will NOT receive an Economic Impact Payment of $1,200.
On April 15, 2021, Michael will file his 2020 income tax return. If Michael’s AGI is less than $75,000 for 2020, then he will get a $1,200 credit against his 2020 tax due.
If your AGI is under the threshold on your most recently filed tax return, you receive an Economic Impact Payment, AND your 2020 income is higher than the threshold, the IRS will NOT make you repay the payment.
The US Treasury and IRS continue to monitor the impact of COVID-19 and instructions from Congress. We will continue to keep you abreast of additional changes.
Note to North Carolina filers: North Carolina Department of Revenue (NCDOR) extended the time to file tax returns originally due on April 15, 2020, to July 15, 2020. The extension is for the filing of your return, not the payment of tax. The NCDOR does not have the authority to extend the due date for taxes owed or waive interest assessed on your late payment. They can and have eliminated the underpayment penalty for taxes not paid between April 15th and July 15th. If you owe tax to NC, you may want to consider either filing by April 15th or submitting a tax payment to cover anticipated taxes due.
This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.