March 20, 2020
Authored by: Tiffany McKenzie and Ashley Kennedy
As a strategy to help combat the economic effects of COVID-19, the U.S. Secretary of the Treasury Steven Mnuchin announced on Monday, March 16th, that taxpayers are getting a 90-day extension for paying their 2019 income taxes. The goal is to free up $300 billion in liquidity and to lessen the cash-flow burdens facing the country as businesses are temporarily forced to close or slash their workforce.
What does this mean?
While the deadline to file your taxes is still April 15th, 2020, tax payments that are made by July 15th will have no interest or penalty. As of today, individuals can defer up to $1 Million, while C corporations get an extension up to $10 million. The $1 million deferral for individuals is to help those who have income from pass-through entities, such as partnerships, LLCs, and S corporations. It is important to remember that this tax payment period extension only applies to federal income tax returns. It is our understanding that this also takes into account income from trusts and estates. While some states are following suit, no extension for other type of Federal tax payments or the filing of any tax return has been granted at this time. Also, there is no extension for making 1st quarter estimated payments. Furthermore, interest and penalties on amounts in excess of the allotted limits not paid by April 15th will begin accruing on April 15th.
Who benefits from this extension?
Many of our clients, especially those who own a business or have multiple partnerships, may benefit from this tax payment extension. While many individuals often apply for a six-month filing extension, the payment extension would allow individuals and corporations to delay submitting 90% of their tax liability. The extension is also attractive to tax preparers because often corporate and partnership returns are more complicated, requiring more information from the client.
However, deferring payment of tax liabilities may not be in the client’s overall best interest. Deferring one’s tax liability could mean a significant payment in June/July when estimated tax payments are due. Instead of one payment in July, you could be saddled with three (delayed income tax payments and two estimated quarterly tax payments). While the administration is also considering delaying these estimated quarterly tax payments, it is recommended for individuals and corporations to still meet the April 15th deadline if there is no added benefit to extending these payments.
We understand that during this volatile and uncertain period, individual circumstances can change suddenly. That is why our Firm is committed to continuing to work on our client’s behalf and meet their needs during this difficult time.