In response to the COVID-19 pandemic nearly every taxing authority (federal, state, and local) granted taxpayers an automatic extension of time to file and/or pay 2019 taxes. This has made the 2020 tax season… interesting. As we approach June 15, which is typically the date second quarter estimated tax payments are due for most taxing authorities, many are wondering if they need to act now, or if they have until July 15, 2020 to make these payments. The answer, as it usually is in taxation is, it depends.
The IRS recently released a reminder, that taxpayers with estimated tax payments for tax year 2020, originally due April 15 and June 15, are now due July 15. This means that any individual that has a quarterly estimated tax payment due for the first or second quarter of 2020 has until July 15 to make those payments without penalty.
Here is where things get a little hairy.
Nineteen states have followed the IRS in extending the due date for first and second quarter estimated tax payments to July 15. A couple more have extended the due date but will still charge interest on payments made after June 15, rendering the extension moot, since an underpayment of estimated tax “penalty” is simply an interest charge for not making quarterly payments.
Seven states levy no personal income tax and two more do not require quarterly estimates.
If you are keeping track, that leaves twenty-three states with June 15* estimated tax due dates when you include Washington, D.C. *Note Hawaii estimates are due June 20 and Indiana estimates are due June 30. Below is chart of the 23 states with estimates due in June.
Note: The above does not consider estimates for franchise or excise taxes imposed on individuals, such as those in Tennessee.
Some states have found other ways to deal with this strange due date issue. For example, Illinois is allowing taxpayers to use 2018 tax liabilities to calculate safe harbor payments where 2019 liabilities have not yet been determined.
Given the volume of local taxing authorities throughout the country, we cannot address each one herein. Instead, below in an analysis of a few select localities.
BIRT – The Business Income and Receipts Tax return has a mandatory estimate for the next year due with the return when filed, which is due July 15. BIRT regulations generally require BIRT estimates for the following tax year be based on 100% of the current year receipts. However, if a taxpayer knows that the following year’s receipts will be less than the current year, the estimated taxes can be based on the lower amount. Since most Philadelphia businesses have been closed for several months during the pandemic, 2020 receipts will likely be less than 2019. Taxpayers should consult their tax advisors and consider this when filing their BIRT return. Note: If there is a shortfall in the 2020 estimated tax paid with the 2019 return, the amount owed with the 2020 return will be subject to interest and penalty.
S1 – no estimates are required for Philadelphia School Income Tax Returns.
Earnings Tax – no estimates are required for the Annual Reconciliation of Employee Earnings Tax.
PA Earned Income Tax (EIT)
Local EIT filing deadlines are aligned with the Federal and State filing deadlines. Accordingly, 2020 second quarter estimates are due July 15, 2020.
PA Business Privilege Taxes (BPT)
Since BPT returns generally have a mandatory estimate due with the return when filed, estimate due dates will follow the due date of the returns, which usually is July 15.
New York City
Estimated NYC income tax payments are included with NYS estimates due June 15.
UBT – Unincorporated Business Tax estimates are due June 15 if a taxpayer has had a change in income expectations (increased income expected) since April 15. NYC Department of Finance Memorandum 20- 5 issued on May 22, 2020, states that interest, where applicable, will accrue at the appropriate underpayment rate on all tax payments received after the original due date, calculated from the original due date to the date of payment, though penalties may be waived upon request.
Tax Warrior Perspective
Some states may later provide relief for penalties associated with a June payment versus July. Where they do not, we believe taxpayers have a strong argument for reasonable cause penalty abatement relief, where available.
Further, taxpayers who have not yet filed their 2019 tax returns, and plan to request an extension of time to file by July 15, should consider including their state first and second quarter payments in their extension payments and apply the overpayment to 2020 estimates. It is unclear if states with June estimate due dates will adjust their 2020 underpayment of estimated tax penalty calculations to account for this peculiar situation of mis-matching due dates, however, there remains a chance they could. Discuss the risks of this option with your tax advisor.
Continue to visit our COVID-19 Tax Resource Center for up-to-date information on how the outbreak may affect your tax filing, payments, and planning. We encourage you to share the page with other business owners. Through this unprecedented series of events, you can count on The Tax Warriors® at Drucker & Scaccetti to help. Call on us for assistance.