As the world continues to battle the spread of the coronavirus, or COVID-19, disruptions to our daily lives have quickly become the new norm. From following strict social distancing guidelines from the CDC to working remotely full time, small businesses everywhere have had to adapt to a more physically distant society. While the population has had to make these adjustments on the fly, the federal government has made some attempts to ease the disruption felt by all Americans, including by extending the tax filing deadline into the summer months.
On March 20, the U.S. Treasury Department announced that it was pushing back Tax Day from April 15 to July 15. In the announcement, IRS officials revealed that the delay applied to every taxpayer in the country, "including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax."
"Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds," said IRS Commissioner Chuck Rettig. "As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I'm incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment."
While taxpayers everywhere now have an additional three months to handle their taxes and tax payments, small business owners face uncertainty in the wake of a growing recession and historic unemployment numbers. With some careful consideration, however, these tax changes don't have to be as daunting as they seem.
How Tax Day 2020 has changed
Unless the day fell on a weekend, Tax Day in the U.S. has been on April 15 for the last 65 years. It's a constant that has only changed a handful of times since the inception of the federal income tax in 1913. When the U.S. Treasury Department announced this latest delay to July 15, it caused taxpayers of all stripes to consider their taxes in a pandemic.
While the date is the most important and readily apparent change announced by the federal government, some other aspects of Tax Day were altered. Along with delaying the tax filing deadline by three months, the IRS is letting taxpayers defer their federal income tax payments to July 15 as well. This deferment only applies to the first-quarter taxes of 2020, which were due on April 15. While such a deferment would usually come with additional penalties and interest charges, the federal government announced that it would waive those fees for all taxpayers regardless of how much was owed. Second-quarter payments, normally due on June 15, will not be part of the deferral plan.
The changes brought on by President Donald Trump and Treasury Secretary Steven Mnuchin do not need much additional input from taxpayers. The IRS stated in its announcement that no additional forms or phone calls will be necessary to qualify for any of these changes. Any individual who needs to an extension past the new deadline can file a Form 4868, while businesses that need an extension need to file a Form 7004.
People First Initiative and tax debt
Along with the deadline extension, the IRS announced its People First Initiative, which Rettig touted as a way to help people struggling with their taxes during the pandemic.
"The new IRS People First Initiative provides immediate relief to help people facing uncertainty over taxes," Rettig added. "We are temporarily adjusting our processes to help people and businesses during these uncertain times. We are facing this together, and we want to be part of the solution to improve the lives of all people in our country."
One of the main functions of the IRS is the collection of debts owed by individuals and businesses alike. When taxes are not paid on time or in full, taxpayers end up with tax debts that sometimes require outside help to square away.
Under the People First Initiative, payments relating to installment agreements or "offers in compromise" will be postponed. Payments due between April 1 and July 15 will be suspended, and the IRS "will not default any installment agreements during this period," though interest will still apply. During that time, officials said the IRS will "avoid in-person contacts," though it will still do everything it can to "protect all applicable statutes of limitations."
"IRS employees care about our people and our country, and they have a strong desire to help improve this situation," Rettig said. "These new actions reflect just one of many ways our employees are working hard every day to assist the nation. We care, a lot. IRS employees are actively engaged, and they have always delivered for their communities and our country. The People First Initiative is designed to help people take care of themselves and is a key part of our ongoing response to the coronavirus effort."
Liens and levies will also be suspended, though IRS agents will continue to pursue "high-income non-filers" and perform other duties "where warranted." Delinquent accounts will not be forwarded by the IRS to private collection agencies during this period.
State taxes during COVID-19
While the federal government has taken steps to address its taxes in the wake of COVID-19, taxes at the state level vary widely. Most states have followed Washington's lead by extending their tax deadlines, but several states have yet to make a move one way or the other.
Anthony Mezzasalma, a CPA with Mezzasalma Advisors, feels small business owners should pay attention to this kind of policy fragmentation.
"My main concern is how many states have not conformed to the July 15 deadline," Mezzasalma said. "It is a little bit of a tax trap to think you have three months to take it easy when you might get hit with steep penalties on the state taxes if you're late."
For state taxes, professionals like Mezzasalma urge businesses to check with their local governments rather than assume their states are adhering to the federal extension. According to data collected by The Tax Institute at H&R Block and the Tax Foundation, numerous states have yet to make any major changes to their tax deadlines. Others – like Massachusetts, Arkansas and New Jersey – have pending legislation in place or have provided relief in other tax areas. Other states, like Minnesota, have also made changes that provide relief for corporate returns or other business entities.