COVID-19: Due Date for Income Tax Payments Extended

Note: This alert was based on the proposed form which was not ultimately adopted. Please see more recent updates on Tax Issues:

CARES Act: Important Tax Provisions

CARES Payroll and Employment Taxes Alert

The Treasury Department expanded this tax payment relief to:  (i) cover all taxpayers who have a tax payment due originally due on April 15, 2020;  (ii) eliminated the limitation on the aggregate amount that can be deferred; and (iii) gave an automatic income tax return filing extension to July 15, 2020 for 2019 income tax returns and first quarter 2020 estimated income tax returns that were originally due on April 15, 2020.[2] The following tax payments are now due on July 15, 2020:

• 2019 federal individual income tax originally due on April 15, 2020;
• 2019 federal corporate income tax originally due on April 15, 2020;
• 2019 federal income tax payable by trusts & estates originally due on April 15, 2020;
• 2019 federal self-employment tax originally due on April 15, 2020; and
• 2020 federal quarterly estimated income and self-employment tax payments originally due on April 15, 2020.

This relief does not apply to other taxes, does not apply to informational returns, and does not apply to income taxes and self-employment taxes due on a day other than April 15, 2020.  The former $1 Million limitation on deferred individual federal income and self-employment taxes, and former $10 Million limitation on deferred corporate income tax has been superseded.  There is now no limit on the aggregate amount of 2019 income tax and 2020 first quarter estimated income tax that was originally due on April 15^th that may now be deferred until July 15, 2020.

For example, Jeremy Cohen is married, self-employed and has employees.  His wife has no federal tax liabilities independent of filing a joint income tax return with Mr. Cohen.  He owes the following federal taxes on April 15, 2020:

• $400,000 of Social Security and Medicare taxes;
• $600,000 of 2019 federal individual income tax;
• $75,000 of 2019 federal self-employment tax;
• $50,000 of 2019 federal ObamaCare tax on investment income;
• $100,000 of 2019 federal gift tax; and
• $300,000 of 2020 estimated income and self-employment taxes that are all due on April 15, 2020.

Mr. Cohen must pay the following amounts on April 15, 2020

• all $400,000 of Social Security and Medicare taxes; and
• all $100,000 of 2019 federal gift tax.[3]

Mr. Cohen and his wife may collectively defer paying the remaining $1,025,000 of federal income, self-employment and withholding taxes that are generally due on April 15, 2020 until July 15, 2020.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

[1] IRS Notice 2020-18, IRB 2020-15.

[2] IRS Notices 2020-17 and 2020-18 do not explicitly address the ObamaCare tax on investment income levied pursuant to IRC section 1411.  We interpret these notices as applying to this tax because it is measured by the taxpayer’s income.  In the above example, if these notices do not apply to the ObamaCare tax on investment income, Mr. Cohen would have to pay $50,000 of ObamaCare tax on net investment income on April 15, 2020.  We anticipate that the Treasury Department will issue authority that clarifies this issue.

[3] IRS Notices 2020-17 and 2020-18 do not explicitly address the ObamaCare tax on investment income levied pursuant to IRC section 1411.  We interpret these notices as applying to this tax because it is measured by the taxpayer’s income.  In the above example, if these notices do not apply to the ObamaCare tax on investment income, Mr. Cohen would have to pay $50,000 of ObamaCare tax on net investment income on April 15, 2020.  We anticipate that the Treasury Department will issue authority that clarifies this issue.