The April 15th Tax Day has come and gone, but the coronavirus pandemic has pushed all filing and payment deadlines to July 15. With additional time to file, you may have some new questions this tax season. Here are a few dates to keep in mind before filing your taxes July 15.
July 2020 Individuals Due Dates
July 1 - Time for a Mid-Year Tax Check Up Time to review your 2020 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties or to determine if the estimated payments and/or withholding can be reduced because your income has declined as a result of the COVID-19 emergency.
July 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during June, you are required to report them to your employer on IRS Form 4070 no later than July 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year it is filed.
July 15 - IRA Contributions for 2019 This is the last day to make IRA contributions for tax year 2019.
July 15 - Individuals If you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your income tax return for 2019, file Form 1040 or 1040-SR, or request an additional 3-month extension using Form 4868, and pay any tax due.
July 15 - Taxpayers Living Abroad Normally, for a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, the filing due date for your 2019 income tax return and to pay any tax due would have been June 15. However, due to the COVID-19 emergency this due date was extended to July 15. If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, July 15 is the filing due date for your 2019 income tax return and to pay any tax due. If your return has not been completed and you need additional time to file your return, file Form 4868 to obtain 3 additional months to file. Then, file Form 1040 or 1040-SR by October 15. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline (see below). Caution: This is not an extension of time to pay your tax liability, only an extension to file the return. If you expect to owe, estimate how much and include your payment with the extension. If you owe taxes when you do file your extended tax return, you will be liable for both the late payment penalty and interest from the due date. Combat Zone - For military taxpayers in a combat zone/qualified hazardous duty area, the deadlines for taking actions with the IRS are extended. This also applies to service members involved in contingency operations, such as Operation Iraqi Freedom or Enduring Freedom. The extension is for 180 consecutive days after the later of:
The last day a military taxpayer was in a combat zone/qualified hazardous duty area or served in a qualifying contingency operation, or have qualifying service outside of the combat zone/qualified hazardous duty area (or the last day the area qualifies as a combat zone or qualified hazardous duty area), or
The last day of any continuous qualified hospitalization for injury from service in the combat zone/qualified hazardous duty area or contingency operation, or while performing qualifying service outside of the combat zone/qualified hazardous duty area.
In addition to the 180 days, the deadline is also extended by the number of days that were left for the individual to take an action with the IRS when they entered a combat zone/qualified hazardous duty area or began serving in a contingency operation.
It is not a good idea to delay filing your return because you owe taxes. The late filing penalty is 5% per month (maximum 25%) and can be a substantial penalty. It is generally better practice to file the return without payment and avoid the late filing penalty. We can also establish an installment agreement, which allows you to pay your taxes over a period of up to 72 months.
Please contact this office for assistance with an extension request or an installment agreement.
July 15 - Estimated Tax Payments – Individuals
The first and second installments of 2020 individual estimated taxes (Form 1040-ES) are due. Normally, these payments would have been due April 15 and June 15, respectively, but because of the COVID-19 emergency, the IRS extended the due dates to July 15.
Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:
Payroll withholding for employees;
Pension withholding for retirees; and
Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.
When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.
Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the de minimis amount), no penalty is assessed. In addition, the law provides "safe harbor" prepayments. There are two safe harbors:
The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.
Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can't avoid the penalty under this exception.
However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.
This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.
CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.
July 2020 Business Due Dates
July 1 - Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, you may need to file a Form 5500 or 5500-EZ for calendar year 2019. Even though the forms do not need to be filed until July 31, you should contact this office now to see if you have a filing requirement, and if you do, allow time to prepare the return.
July 15 - Corporations If you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your corporate income tax return for 2019, file Form 1120 or 1120S, or request an additional 3-month extension using Form 7004, and pay any tax due.
July 15 - Fiduciaries If you took advantage of the 3-month COVID-19 automatic extension provided by the IRS to file your trust or estate income tax return for 2019, file Form 1041, or request an additional 2-1/2-month extension using Form 7004, and pay any tax due.
July 15 - Estimated Tax – Corporations Corporate 2020 estimated tax payments that would normally have been due between April 1, 2020 and July 14, 2020 are payable on July 15, 2020.
July 15 - Social Security, Medicare and Withheld Income Tax If the monthly deposit rule applies, deposit the tax for payments in June 2020. However, you may be able to retain a portion of the deposit to fund the mandatory paid sick leave and family leave under the Families First Coronavirus Response Act or defer portions to 2021 and 2022 under the CARES Act.
July 15 - Non-Payroll Withholding If the monthly deposit rule applies, deposit the tax for payments in June.
July 31 - Self-Employed Individuals with Pension Plans If you have a pension or profit-sharing plan, this is the final due date for filing Form 5500 or 5500-EZ for calendar year 2019.
July 31 - Social Security, Medicare and Withheld Income Tax File Form 941 for the second quarter of 2020. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return. See note below.
Note: Under the Cares Act, employers…
Are able to defer paying the employer’s 6.2% portion of the Social Security taxes through the end of 2020. The delay provisions apply to all employers regardless of the number of the employer’s employees.
Are able to retain enough of the federal income tax withholding of each employee who received mandatory COVID-19 sick and family leave payments and both the employer’s and employee’s share of social security tax deposits, as well as the employer’s share of Social Security and Medicare taxes with respect to all employees, to reimburse themselves for mandatory COVID-19 sick and family leave payments.
Are able to retain the employer’s 6.2% portion of the Social Security taxes (and equivalent RR retirement amounts) to reimburse themselves for keeping employees on payroll under the Employee Retention Credit.
July 31 - Certain Small Employers Deposit any undeposited tax if your tax liability is $2,500 or more for 2020 but less than $2,500 for the second quarter. July 31 - Federal Unemployment Tax Deposit the tax owed through June if more than $500. July 31 - All Employers If you maintain an employee benefit plan, such as a pension, profit-sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2019. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends.