On March 17, 2021, the Treasury Department and the IRS announced the 2020 individual federal income tax filing due date will be automatically extended from April 15, 2021, to May 17, 2021. Since then, over 25 states and localities have announced similar extensions. The Tax Warriors have been patiently waiting for the additional guidance promised by the IRS, however, here we are 6 days later, with no such guidance. Today we will discuss what we know about the extensions, how they compare to last year, what is not extended (hint – Q1 2021 estimates are still due April 15) and several questions that remain.
What We Know
IR-2021-59 states that tax year 2020 individual income tax returns and related payments are now due May 17, 2021. Effectively giving a one-month reprieve on the filing and payment deadline for Forms 1040. To qualify you do nothing. Individual taxpayers who need additional time to file beyond the May 17, 2021 deadline can request a filing extension until October 15, 2021 by filing Form 4868 . Filing Form 4868 gives taxpayers until October 15, 2021 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their 2020 federal income tax due by May 17, 2021, to avoid interest and penalties.
In the days following the IRS announcement, many states, and localities released guidance extending the due date of their individual income tax returns. Since this is an evolving situation, we will not list the states herein, however we will note that the states and localities where the majority of our clients reside or do business (Pennsylvania, New York, New Jersey, Connecticut, California, and Philadelphia) have all conformed with the federal extended due date. Taxpayers should consult with their tax advisors to confirm your state and local tax filing deadlines.
What is Not Extended
First Quarter 2021 estimated tax payments remain due on April 15, 2021.
In his March 18, 2021 testimony to the Oversight Sub-Committee of the Ways & Means Committee, IRS Commissioner Charles Rettig explained the reasoning behind not extending the estimated tax due dates. Which, paraphrased, amounted to him blaming wealthy taxpayers for not voluntarily paying before extended due dates because they can. He further indicated that small business taxpayers could ask for relief from penalties should they not be able to pay their first quarter estimates by April 15th. However, in this part of his testimony, he failed to address the 6-month mail backlog the IRS is facing. These backlogs are causing significant delays and communication challenges for taxpayers and tax professionals, which would delay processing of penalty abatement requests.
All tax forms, other than Forms 1040 remain due on, or must be extended by, their original due date.
This starkly contrasts with last year, where the IRS extended all tax forms, elections, etc. together to avoid confusion. Considering Commissioner Rettig’s comments weeks before the extension announcement, about not wanting to extend the due date to avoid confusion (actually, he flat out said they would not extend the due date – oops), we are perplexed about the reasoning for this last-minute limited extension of due dates.
Q1: What if a taxpayer includes Q1 2021 payments in an extension payment not remitted until May 17? Will the overpayment be applied as if it was made by April 15 or May 17?
Tax Warrior Perspective Q1: The IRS should address this in their forthcoming guidance. If a taxpayer has a significant Q1 2021 payment normally included in their extensions, they should make their extension payment by April 15 until more is known. Alternatively, taxpayers can remit a separate Q1 2021 payment online or with Form 1040-ES. Note, the current underpayment of estimated tax penalty for this quarter is 3%.
Q2: Should taxpayers file a separate Form 709 gift tax extension since Form 709 is not extended to May 17 based on current guidance, even though Forms 709 are usually extended with Forms 4868, which may not be filed until May 17 due to the 1040 extension?
Tax Warrior Perspective Q2: Taxpayers who wish to extend their Form 709 gift tax return should file Form 4868 by 4/15. Alternatively, taxpayers should file Form 8892 to ensure their gift tax returns are properly extended. The IRS may address this in future guidance; however, taxpayers would be wise to do everything possible to ensure returns are properly extended based on current guidance available.
Q3: Is the deadline to fund IRA and HSA accounts for tax year 2020 extended to May 17 too?
Tax Warrior Perspective Q3: Until we have guidance from the IRS on this issue, taxpayers should assume the deadline for funding IRA and HSA accounts remains 4/15.
Q4: If a taxpayer previously electronically filed their federal tax return with a direct debit scheduled for 4/15. Can this be changed to 5/17?
Tax Warrior Perspective Q4: Taxpayers can cancel their payment by contacting the U.S. Treasury Financial Agent at 1-888-353-4537. Payment cancellation requests need to be made by 11:59 p.m. EST two business days before the scheduled payment date. Taxpayers must then reschedule the automatic payment or mail a check to the IRS. For those using IRS Direct Pay or the Electronic Federal Tax Payment System (EFTPS), both have directions for canceling payments, which needs to be done two days before the payment date. For IRS Direct Pay, use the Look Up a Payment Feature. For EFTPS, log in and click on Cancel a Tax Payment. Taxpayers who scheduled an automatic payment by credit or debit card should contact the card company to change the date.
Q5: Is the statute of limitations for amended 2017 Forms 1040X extended from 4/15 to 5/17?
Tax Warrior Perspective Q5: Until IRS provides guidance on this issue, taxpayers should assume the deadline for filing amended or original refund requests relating to 2017, that would have been due by 4/15/21, are still due 4/15/21.
What a mess the IRS has created! While many taxpayers and tax pros are grateful for a one month reprieve, the Tax Warriors find the confusion created by the deadline change to be more disruptive than helpful. If you have any concerns about your tax filings related to this announcement, or anything relating to the coronavirus pandemic, visit our COVID-19 Tax Resource Center or contact your Drucker & Scaccetti tax advisor.
Editorial comment: It was disappointing to read that the IRS selectively extended the due dates of returns in a half-hearted attempt to do the right thing. Our lack of support is rooted in the concern for the wellbeing of our team of hardworking tax professionals. We heard and are hearing from our youngest Tax Warriors that they feel like they are on a ‘treadmill they can’t get off’ due to, now two, ‘never ending’ tax seasons.
The data indicates small businesses are struggling. To help them, let us advocate for relief from penalties for those owing under a certain dollar threshold. Businesses and individuals can then extend their spring filing deadlines until the fall and meet long-established deadlines that our industry’s workflow structure has been built on. The IRS could still collect interest on unpaid tax until paid, since they are in essence providing capital for those that are struggling. Doing this addresses the real issue, payment without costly and timely communication with an IRS already overwhelmed and backlogged.
In the future, a different advocacy is needed, one that will protect our clients and tax professionals. Extending the time to pay without penalty for small businesses would have been a much better solution.