IRS Issues Guidance on a 90-Day Extension for Tax Payments
On March 20 the Secretary of Treasury announced tax day will be extended to July 15.
On Tuesday, March 17, Treasury Secretary Mnuchin announced a 90-day extension for making tax payments (not for filing tax returns), in response to the coronavirus outbreak (COVID-19). Very few details were given with the announcement, which left many questions unanswered. The IRS acted quickly and released Notice 2020-17 on Wednesday, March 18, providing guidance on the 90-day extension.
Read on for some key takeaways from the notice.
Deferral of tax payments
Any taxpayer, other than a C corporation, can postpone payment of up to $1 million of income tax payments due on April 15, 2020, until July 15, 2020. While initial reports suggested the tax deferral was available only to individuals, the notice appears to extend the deferral to income taxes owed by trusts and estates.
C corporations can postpone payment of up to $10 million of income tax payments from April 15, 2020, to July 15, 2020.
Income tax payments include both 2019 return payments and 2020 estimated tax payments due on April 15.
The $1 million deferral limit for individuals applies regardless of filing status, so a married couple filing a joint return can defer the same amount as a single taxpayer.
Limitations on the deferral
While the IRS deferral of tax payments can provide much needed cash flow relief in the wake of COVID-19, there are several limitations on the deferral:
The deferral currently does NOT apply to extensions, returns, or information returns.
The deferral only applies to 2019 return payments and 2020 estimated tax payments due on April 15, 2020. That means fiscal year-end taxpayers that have a tax payment due after April 15, 2020, but before July 15, 2020, are not eligible for the deferral. Likewise, fiscal year-end taxpayers with an estimated tax payment due on April 15 on account of the 2019 tax year do not appear to be eligible for the deferral.
The deferral does not apply to second-quarter estimated tax payments that will be due June 15, 2020.
The deferral of tax payments only applies to federal income taxes. For example, it does not apply to payroll, gift, estate, excise, or state income taxes. Your state, however, may choose to conform to the federal deferral.
The deferral does not apply to 2019 IRA contributions due on April 15, 2020.
The threshold amounts eligible for deferral are considered on an aggregated basis. For example, an individual with a 2019 income tax liability and a 2020 estimated tax payment liability can only defer up to $1 million on a combined basis.
If an extension is filed, a reasonable estimate of the 2019 tax liability is required to be reported on the extension. Consequently, you may be required to come up with a reasonable estimate of your tax by April 15 even if you defer the entire payment until July.
Please contact your tax prepare for up-to-date information and advise.