IRS Coronavirus Tax Relief: Tax Filing, Tax Payment Deadline, and Other Changes

March 30, 2020 | By: Bryan Jinks

irs people first initiativeThe IRS changed many tax filing and tax payment deadlines in response to the coronavirus outbreak. The IRS launched the People First Initiative. As a result,  Individual and business taxpayers have additional time to take the following actions:

  • File their 2019 tax returns
  • Pay tax due on 2019 tax returns
  • Make estimated tax payments

The coronavirus stimulus package that was signed into law by President Trumps also includes direct payments to taxpayers, expanded unemployment benefits, and loans to businesses and municipalities.

IRS Tax Filing Deadline Changes

The IRS has changed the tax filing deadline for 2019 returns from April 15th, 2020, to July 15th, 2020. This change applies to individuals, trusts, estates, corporations, or unincorporated business entities. The IRS will not assess the 5% failure-to-file penalty to taxpayers as long as they file their return by July 15th.

You don’t need to do anything to receive this extension of the typical filing deadline, and the IRS has no requirement that a taxpayer show they were impacted by the COVID-19 outbreak.

If you are going to receive a refund on your tax return, you are still encouraged to file as soon as possible. Most refunds are issued within 21 days for taxpayers who e-file their returns.

Taxpayers who need additional time to file their returns can request an automatic extension by submitting Form 4868. This will extend the filing deadline to October 15th, 2020.

IRS Tax Payment Deadline Changes

Tax payments that were due on April 15th, 2020, are now due on July 15, 2020. The IRS will not assess the 0.5% failure-to-pay penalty to taxpayers as long as they pay their taxes by July 15.

This payment deadline extension applies to:

At this time, the second-quarter estimated tax payment due on June 15, 2020, has not been postponed.

If you’re ready to file your tax return, you can file now and schedule a payment on or before July 15 to avoid late-payment penalties.

Changes to State Tax Filing and Payment Deadlines

Many states have extended the filing deadline for state income tax returns. For example, both California and New York have extended their filing deadlines to July 15.

If you need to file a state income tax return or pay state income taxes, check with your state’s tax agency to determine the applicable deadlines and whether they are offering any type of tax relief.

Impact of Coronavirus on IRS Operations

The IRS is continuing to operate mission-critical activities, including processing tax returns and issuing refunds. The IRS still strongly recommends the E-filing of returns as paper returns may requiring additional processing time, resulting in delays.

Taxpayers need to know about the following changes the IRS has made to its operating during the COVID-19 outbreak:

  • The IRS closed all Taxpayer Assistance Centers until further notice.
  • The IRS still offers phone support, but some offices have been closed, and wait times may be longer than usual.
  • Taxpayers who send correspondence by mail to the IRS should expect delays in receiving a response.

Suspension of Payments for Existing Installment Agreements

In response to the coronavirus outbreak, the IRS has agreed to temporarily suspend certain payments and collection activities as part of the new IRS People First Initiative. If you have an existing installment agreement with the IRS, any amounts due between April 1st, 2020, and July 15th, 2020, are suspended. Your payment plan will not go into default if you miss payments during this period. However, interest will continue to accrue on any unpaid balances. Note, taxpayers must call their bank to stop automatic payment plan payments, as the IRS will not do this for them.

IRS Changes With the Offer In Compromise (OIC) Program

If the IRS accepted a taxpayer’s Offer in Compromise and they are currently making payments, taxpayers will have the option of suspending any payments due until July 15, 2020. Interest will continue to accrue on the unpaid balance. With regards to a taxpayer providing more documentation and information to support a pending OIC, the IRS will provide taxpayers until July 15th, 2020. Moreover, the IRS will not close any pending OICs before July 15th, 2020, without the taxpayer’s consent.

The IRS will also not default any Offer in Compromise, for taxpayers who did not file their 2018 tax return. However, taxpayers must file their 2018 and 2019 tax returns by July 15th, 2020.

Suspension of Certain IRS Collection Activities

The IRS has suspended the following collection activities until July 15, 2020, for most cases:

  • Lien and levies initiated by field revenue officers
  • New automated liens and levies
  • Forwarding of new accounts to private collection agencies
  • Initiation of most new IRS audits
  • Certification of tax liabilities as “seriously delinquent” to the State Department to result in a passport revocation or denial

If the statute of limitations for your case is nearing expiration, the IRS may pursue actions to protect the government’s interest or ask taxpayers to agree to extend the statute of limitations. Also, if the taxpayer has a levy or wage garnishment currently, they have to call their employer to stop it as the IRS will not automatically stop it.

Stimulus Checks

The coronavirus stimulus bill package includes direct payments of up to $1,200 to each taxpayer ($2,400 for married taxpayers who file jointly), along with a $500 payment for each dependent child under age 17.

The government will reduce the amount of the stimulus payment if the taxpayer’s income exceeds certain thresholds. The adjusted gross income (AGI) from the taxpayer’s 2019 return (if the taxpayer has not filed yet, then their 2018 tax return) determines the amount of the stimulus check. If the taxpayer has not filed a 2018 or 2019 return, they may want to do so to make sure they receive their stimulus payment without delay.

The payments are phased-out at the following income levels:

  • For Single taxpayers, the amount of their check drops once your AGI exceeds $75,000, and they won’t receive a stimulus payment if their AGI exceeds $99,000.
  • For Heads of Households, the phase-out begins at AGI above $112,500. The payment drops to zero for AGI’s above $146,500.
  • Married taxpayers who file jointly will see a reduction in their stimulus payment if AGI exceeds $150,000, with no payment for an AGI above $198,000.

You must have a Social Security Number to qualify so that non-resident aliens won’t receive a stimulus check.

You may receive a stimulus payment directly into your bank account if you have direct deposit sent up with the IRS. Otherwise, checks get mailed to the taxpayer.

Waiver of Penalties for 401(k) Hardship Withdrawals and Waiver of Required Minimum Distributions

The coronavirus stimulus package also includes a provision that waives the 10% penalty for early withdrawals from a qualified retirement account. There is a separate provision that waives the requirement to take required minimum distributions this year.

The waiver of penalties for early withdrawals is subject to the following rules:

  • Taxpayers may withdraw up to $100,000 from their 401(k) or IRA without paying the early-withdrawal penalty.
  • Taxpayers won’t have to pay income taxes on these withdrawals if they repay them within three years.
  • Income taxes are due if the taxpayer fails to pay back the withdrawal within this period, but the taxes can be paid over three years instead of all at once.
  • The taxpayer must take the withdrawal because of a coronavirus diagnosis by the taxpayer, a spouse, or a dependent. The taxpayer can also take the withdrawal due to adverse financial consequences (such as being laid off) caused by the coronavirus outbreak, or an inability to work because of a lack of child care.

The maximum loan amount offered by a 401(k) will also be increased to the greater of $100,000 or 100% of the account’s value.

While taxpayers age 72 or older are generally required to take minimum distributions from their retirement accounts, the coronavirus relief bill would suspend this requirement for 2020.

Business Tax Credits for Coronavirus-Related Paid Leave

The Families First Coronavirus Response Act (FFCRA), which was signed by President Trump on March 18th, 2020, provides two new tax credits for businesses that offer coronavirus-related leave to their employees.

Under the FFCRA, employees may receive either sick leave or paid child care leave due to school closures or the unavailability of child care providers. The FFCRA applies to employers with fewer than 500 employees, although businesses with fewer than 50 employees may be exempt if providing the paid leave would jeopardize the viability of the company.

Employers who provide this paid leave will receive a dollar-for-dollar tax credit for the cost of providing the benefit. This IRS will give the employer credit as an offset against the payroll taxes paid by the employer. The employer may reduce the amount of their payroll tax deposits by the amount of the qualifying sick and child care leave paid to employees.

Other Coronavirus Tax Relief Programs

The IRS or state tax agencies may extend some of these tax relief programs or make further changes, depending on the economic disruption caused by the coronavirus outbreak. Stay updated on these changes to make sure you avoid tax problems while also taking advantage of the coronavirus tax relief programs that are available.