In breaking news today, March 20, Treasury Secretary Steven Mnuchin announced via Twitter that the tax filing deadline has been extended to July 15, 2020. This announcement followed his earlier notice that his department is pushing back the April 15 deadline to pay taxes owed for many individuals and businesses, giving them 90 extra days to pay what they owe before accruing penalties and interest. The Internal Revenue Service (IRS) has not posted an update or additional guidance to Mnuchin’s announcement today, and we will provide more updates as the details come out.
As a reminder, earlier this week, the IRS issued Notice 2020-17 (Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic). BBH is closely monitoring the IRS actions, and the following is an update of what we know today. As the regulations are evolving, we encourage you to talk to your tax advisors for details on how these changes affect your personal situation.
Are there limitations on the amount of postponed payments?
- Individual and other taxpayers can postpone tax payments up to $1,000,000 regardless of filing status (i.e., individual, joint, etc.).
- C-corporations and consolidation groups can postpone payments of up to $10,000,000.
- Payments in excess of these thresholds will still be due on April 15.
Do you still have to file a return by April 15?
The initial IRS notice did not provide for an extension for the filing of any tax return due April 15, 2020 unless you file for an extension. The rules on extensions have not changed. However, as noted above, Secretary Mnuchin recently Tweeted that he has approved an extension from April 15, 2020 to July 15, 2020. We have not yet seen formal confirmations from the IRS but expect they will be forthcoming.
Does the payment extension apply to quarterly estimated payments?
Yes, this relief applies to both payments for tax year 2019, as well as estimated quarter one payments for tax year 2020 due on April 15.
Does the extension on the payment of taxes apply to individual and business tax returns for each state?
Most states seem to be mirroring the federal government, but you must review the requirements for each state independently.
Who should take advantage of the extension to pay their federal, and potentially, their state income taxes?
Anyone who is experiencing cash-flow issues should consider delaying their tax payments. However, each individual and business owner will need to review their personal situation and balance the potential pros and cons of delaying their tax payments and, to the extent possible, the filing of their tax returns.
Is there any downside to delaying your payment past the normal April 15 deadline?
Barring liquidity issues, some tax experts recommend that you do not delay paying your tax obligations or filing your tax returns because:
- Filing your tax return and paying your 2019 tax obligations helps you know where you stand in 2020.
- Taxpayers who lose sight of postponed payments and make a payment after July 15, 2020, will be deemed late, and interest and penalties will begin to accrue on July 16, 2020.
In summary, for some individuals and businesses, this relief could provide a welcome reprieve from the obligation to pay federal taxes on April 15; however, there are important limitations to consider.
We hope this summary helps provide you and your tax advisors with some helpful insights.
Brown Brothers Harriman & Co. and its affiliates do not provide tax advice. This material has been prepared for informational purposes only. You should consult your own tax and legal advisors before engaging in any transaction. Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally.This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2020. All rights reserved. PB-03435-2020-03-19