Tax Implications of the SECURE ActFebruary 13, 2020
IRS NewsMay 2, 2020
U.S. Treasury Secretary Steven Mnuchin announced early on Tuesday, March 17, 2020, that the IRS will let many Americans off the hook with regard to taxes they owe for the 2019 tax year-at least for 90 days. The change was prompted by COVID-19, the coronavirus sweeping the country as Tax Day 2020 fast approaches.
Tax Day itself hasn’t changed, at least, not yet. That’s still April 15, so yes, you must file a tax return by that date or take the proper steps to ask the IRS for more time, i.e. file an extension. Only tax payments have been affected by this announcement, as far as we know. The IRS has not released specific guidance following the Secretary’s announcement. We will update as more information becomes available.
Tax payments are historically due on April 15. You must pay up by that date if you haven’t had sufficient tax withheld from your paychecks, or if you haven’t sent in enough in the way of quarterly estimated tax payments over the course of the tax year. The IRS will begin hitting you with interest and penalties after that date. The late-payment penalty is 0.5% of any portion of the tax due but not paid by April 15, then 0.5% a month on any unpaid balance up to 25% total.
And that’s just the late filing penalty. Interest will accrue as well, and the rate can change quarterly because it’s the federal short-term rate plus 3%.
When you do make a payment, the IRS applies that money to the actual tax you owe first. Your payments only go to accumulating penalties after the balance has been eliminated.
The 2020 Payment Due Date
None of this applies in 2020, at least not for most taxpayers. Mnuchin stated on March 17, 2020, that you can “defer” or postpone up to $1 million in taxes due for up to 90 days, which takes you midway through July. No penalties or interest will accrue during these three months.
As of yesterday, SC has extended the filing deadline to June 1. We’re not sure if that will change if they extend the filing deadline for federal purposes, so we will keep you posted if that due date is updated to coincide with the federal one.