IRS allowing more time to pay federal income taxes

At the March 17 White House briefing on COVID-19, Treasury Secretary Steve Mnuchin announced that individual taxpayers will be allowed a 90-day extension to pay federal income taxes otherwise due on April 15 of up to $1 million and that C corporations will receive a similar accommodation on up to $10 million in corporate income taxes.

Secretary Mnuchin said that taxpayers would not need to take any action other than simply make tax payments by July 14, in which case the IRS will not assess penalties and interest for payment being made after April 15.

Taxpayers already can get an automatic extension of time to file their federal income tax returns by filing an extension with the IRS by April 15, but payments would have been due with those extensions without this action by the Treasury Secretary.

UPDATED March 19, 2020 

The IRS has issued Notice 2020-17 that clarifies:

  • Individuals may defer payment of up to $1 million of federal income taxes until July 15, 2020.  The $1 million amount is the same for a single individual and for married couples filing jointly (so couples cannot defer $2 million).
  • C Corporations (whether filing as a consolidated group or as a separate corporation) may defer up to $10 million of federal income taxes until July 15, 2020.
  • Deferred taxes may include final payments of 2019 income taxes and payments of first quarter estimated taxes for 2020, but the aggregate amount deferred is limited as described above.
  • Amounts due in excess of the limits still must be paid on or before April 15, 2020.
  • Only payments of federal income taxes may be deferred.  Other federal taxes otherwise due on April 15, 2020 must still be paid by that date.
  • For purposes of determining penalties and interest on late payments of federal income taxes, the period from April 15, 2020 to July 15, 2020 is ignored.
  • There is no mention of a deferral in the federal income tax return filing date.  Therefore, taxpayers will still need to file extensions by April 15, 2020 to delay filing their federal income tax returns.

While Secretary Mnuchin’s announcement only applies to taxes due to the federal government, a number of states have also announced their own extensions of time to file or pay taxes.  The following states have indicated that they will follow any extension of time granted by the federal government: Colorado, Connecticut, Indiana, Maryland, Massachusetts, Michigan and Ohio. Other states have taken the following steps:

  • California - The Governor of California has issued an Executive Order delaying by 60 days the tax return filing deadline for any individual or business that are unable to file by April 15 as a result of complying with social distancing measures related to COVID-19. The Governor directed the California tax authorities to provide relief from interest and penalties for late tax payments due to COVID-19 and to extend payment deadlines, audits, billings, notices, assessments, claims for refunds and relief from interest and penalties.
  • Connecticut - Connecticut extended until June 15 the due date for filing tax returns for pass-through entities and corporation as well as unrelated business income tax returns.
  • Florida - Official guidance has not been issued, but Florida’s governor announced that payment corporate income taxes and sales taxes can be delayed, perhaps until the end of the state’s fiscal year.
  • Maryland - Maryland will allow businesses to delay filing March, April and May returns for sales and use tax, withholding tax, and admissions & amusement tax, as well as alcohol, tobacco and motor fuel excise taxes, tire recycling fee and bay restoration fee returns until June 1 without penalties and interest. 
  • North Carolina - North Carolina is waiving penalties for failure to file returns, pay taxes, or file information returns that were due between March 15, 2020 and March 31, 2020 so long as those returns (or extensions for them) are filed or payments made by April 15, 2020.  Interest will still be due on late payments. Waivers of penalties are not automatic, but must be requested on Form NC-5500.
  • Oregon -  While Oregon will follow the federal government on extending 2019 income tax payments, estimated payment due dates for 2020 taxes have not been extended by Oregon, although the Oregon Department of Revenue may waive interest for late payments of estimated taxes.  Similarly, penalties may be waived for late payment of quarterly corporate taxes due June 30 in certain circumstances.
  • South Carolina - Tax returns and payments otherwise due between April 1 and June 1 are now due on June 1.  This includes all tax payments and returns for all types of taxpayers (individuals and entities).  The relief is automatic, so no action needs to be taken.
  • Washington - The Washington Department of Revenue has indicated that it will be more flexible in granting extensions of time for businesses to file and pay state excise taxes.

We will provide further updates when the IRS issues further guidance and as more states announce similar initiatives.

+