The unprecedented COVID-19 crisis has led to unprecedented intervention by the government to offset the economic impact. This article reviews tax filing and payment deadline delays, as well as individual rebates authorized by the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. More information on ever-evolving COVID-19 relief provisions can be found on the CALT website at calt.iastate.edu.
On March 20, the Internal Revenue Service postponed to July 15 the filing of any federal income tax returns and any income tax payments due April 15. This relief applies to anyone with a federal income tax payment or a federal income tax return due April 15. This includes estimated tax payments, including payments of tax on self-employment income due on April 15. At the time of publication, estimated tax payments due June 15 have not been extended. The reprieve does not provide relief from penalties to taxpayers who did not pay enough estimated tax in 2019. This would include farmers who did not pay estimated taxes by Jan. 15, or file their returns and pay their taxes by March 2.
Because of the blanket IRS delay, taxpayers are not required to file any forms to extend their filing or payment deadline to July 15. There is no limit on the amount of the payment that may be postponed. If taxpayers need additional time to file their returns beyond July 15, they may file an extension form with IRS by July 15 to receive an automatic extension to file through Oct. 15. To avoid interest and penalties, however, the taxpayer must still pay their taxes due by July 15.
Because the deadline for filing returns has been automatically postponed to July 15, taxpayers may also now wait until that date to make contributions to an individual retirement account or a health savings account. These contributions may be deducted against 2019 income.
Iowa tax return and payment delay
The Iowa Department of Revenue has also extended the filing and payment deadline for several state tax types, including income tax. Iowa has extended filing and payment deadlines for income, franchise and moneys, and credits taxes with a due date on or after March 19 and before July 31 to a new deadline of July 31. Unlike the IRS, however, Iowa has chosen not to extend the deadline for making first-quarter estimated payments.
Congress has also been busy passing legislation to provide aid to Americans during this difficult time. On March 27, President Donald Trump signed into law H.R. 748. The CARES Act comprises Phase 3 of COVID-19 legislation and provides $2.2 trillion in relief provisions, including various tax benefits.
The most wide-reaching provision in the CARES Act will provide cash payments to most adults. “Eligible individuals” include anyone except nonresident alien individuals or individuals that someone else can claim as a dependent.
The Department of Treasury is directed to make these payments, which are characterized as rebates or credits against 2020 taxable income, “as rapidly as possible.” Each individual will generally receive a $1,200 payment. Individuals who file a joint return will receive a combined $2,400 payment.
In addition, individuals will receive $500 for each “qualifying child.” This generally includes dependent children under the age of 17 for whom the individual has a Social Security number.
The rebate payment will be reduced by 5% of the amount by which a taxpayer’s adjusted gross income exceeds $150,000 for joint return filers, $112,500 for those filing as head of household, or $75,000 for other taxpayers.
To allow the payments to be made quickly, the IRS will automatically calculate the payments based upon information on 2019 returns. If the taxpayer has not yet filed a 2019 return because of the deadline postponement, the IRS will use information on 2018 returns. If an individual did not file a return in 2018 or 2019 for insufficient income, the IRS is requesting that the taxpayer file a “simple return.” It is not clear what this means, but more details will be available soon on the IRS website.
Credits and refunds for 2020
The law states that when filing the 2020 return, the amount of the 2020 recovery rebate credit will be reduced (but not below zero) by the aggregate refunds and credits made or allowable to the taxpayer through an advance refund payment. With joint filers, half of each credit is treated as made or allowed to each individual.
This means that if the rebate sent to the taxpayer was more than the 2020 credit calculated at the time the 2020 return is filed, the taxpayer will not be required to repay the difference. If, however, the taxpayer is entitled to a higher credit using 2020 tax data, the taxpayer will be entitled to recover the difference as an offset against 2020 tax liability or as a refundable credit. Thus, it appears that the provision is very taxpayer-friendly.
If 2019 income did not limit the payment, but 2020 income would, the taxpayer should not have to pay back the payment already received. Conversely, if 2019 income would have limited the credit, but 2020 income does not, the taxpayer may claim the full credit when filing the 2020 return. This may also mean that some taxpayers might fare better if they have not filed a 2019 return, while others will fare better if they have. IRS guidance should clarify these issues.
Tidgren is an attorney and director of the Center for Ag Law and Taxation at ISU. Contact her at email@example.com.