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Despite Recent IRS Extensions, Some Employees & Annuitants Still Face April 1st RMD and April 18th Filing Deadlines

March 24, 2020 - By Edward A. Zurndorfer, Certified Financial Planner

The recent IRS notices allowing a three-month extension to July 15, 2020 for filing 2019 federal income tax returns and paying any balances due without penalty and interest charges were welcome news to many federal annuitants and employees.

SEE ALSO:

  • TSP Issues Expanded FAQs on Suspension of Required Minimum Distributions (RMDs)
  • Tax Day Now July 15: IRS Extends Filing Deadline and Federal Tax Payments

The coronavirus pandemic has caused much havoc in the lives of many annuitants and employees resulting in the inability of these individuals to file 2019 returns by the original filing deadline of April 15, 2020.

But there are two upcoming deadlines in April 2020 that may be affecting some annuitants and employees. These deadlines will not be extended by the IRS.

The April 1, 2020 deadline is for individuals who became age 70.5 during 2019 who own traditional IRA’s and/or qualified retirement plan accounts and who must take their first year required minimum distribution (RMD) from these accounts. The April 18, 2020 deadline is for individuals who need to file or to amend their 2016 federal income tax in order to obtain a 2016 federal income tax refund. These deadlines are not being extended by the IRS and are discussed in this column.

April 1, 2020 Deadline for Taking First Year RMD for Individuals Becoming Age 70.5 During 2019

With the recent passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, it was hoped that the rather confusing age 70.5 in the tax code would be eliminated. The age 70.5 has existed in the tax code since the 1960’s for no reason other than to bewilder individuals.

  • SEE ALSO: Significant Changes to TSP and IRAs from SECURE Act

Under the SECURE Act, the required minimum distribution (RMD) age is raised from age 70.5 to age 72. Under the RMD rules as written by the IRS, an individual’s required beginning date (RBD — the deadline for taking the first year RMD) is April 1st following the year in which the individual becomes age 70.5. The SECURE Act modified the rules and changed an individual’s RBD to April 1st following the year an individual becomes age 72. Four important points with regard to the RBD and RMD:

(1) The RMD rules apply to traditional IRAs and to qualified retirement plans such as 401(k) and 403(b) retirement plans.

(2) The RBD is for the first year RMD only; subsequent RMDs after the first year must be taken each year and the deadline for taking each year’s RMD is December 31 of that year.

(3) The SECURE Act provision raising the RBD to April 1 following the year an individual becoming age 72 applies to individuals born after June 30, 1949; those individuals born before July 1, 1949 have a RBD of April 1st following they become age 70.5.

(4) IRS will impose a 50 percent penalty for not taking a RMD in any given year.

Those federal employees and annuitant who were born between July 1, 1948 and June 30, 1949 became age 70.5 during the year 2019. These individuals have an RBD of April 1, 2020. If those individuals own traditional IRAs and/or qualified retirement accounts such as 401(k) or 403(b) retirement plans from companies or organizations they have retired from or are no longer working for, they have first year RMDs that must be taken. They have a deadline that is about one week away. The IRS has not announced any extension for the April 1, 2020 first year RMD.

April 18, 2020 Filing Deadline to Receive a Refund from a 2016 Federal Income Tax Return

In general, if an individual is due a refund from a previous year’s federal income tax return – either a tax return that was originally filed and subsequently amended or a tax return that was never filed – then the individual has until the earlier of two years from the date the amended return was filed or three years from the date that the tax due on the tax return was considered paid (April 15 of the year following the year being filed) to file the tax return in order to be sent the refund.

This means, for example, that any individual who did not file a federal income tax return for tax year 2016 (due date of the 2016  federal income tax return was April 18, 2017 because April 15, 2017 was a Saturday and April 17, 2017 was Emancipation Day in the District of Columbia and the IRS extended the 2016 federal tax filing deadline to Tues. April 18, 2017) and expects a federal income tax refund for 2016 has until April 18, 2020 to file a 2016 federal income tax return.  An individual who has to amend a 2016 federal income tax return in order to receive a refund has until April 18, 2020 to file an amended federal tax return for 2016.

The April 18, 2020 due date is three years from the original due date to file 2016 federal income tax returns. If the individual does not file by April 18, 2020, then the IRS will reject a 2016 federal tax return or an amended 2016 federal tax return that results in a refund. The individual will permanently lose the 2016 federal tax refund.

In addition to filing a federal income tax return or an amended return for tax year 2016, if an individual lives in a state that has an income tax, then the individual needs to consider also filing a 2016 state income tax return. This is because the state revenue departments match information with the IRS. If a federal tax return is filed, then a state tax return should be filed. Moreover, as is true with the federal return, if a refund is expected on a state tax return and the state income tax return is not filed by the filing deadline (three years from the original due date), then the state tax refund will be permanently lost.

It should be emphasized that the Treasury Department and IRS do not have the authority to extend the statute of limitation for the deadline filing for federal tax refunds of past year returns, even in the current situation of the coronavirus. Therefore, any individual expecting a refund from a 2016 federal income tax return and state income tax return, either a return that has to be done because it was never prepared, or an amended 2016 federal income or state income tax return, has until April 18, 2020 to mail a paper return to the IRS. The federal tax return and if applicable, the state tax return, cannot be electronically filed.

Related:

  • Some Federal Employees, Annuitants Face August Deadlines
  • IRS to Address Recent Changes to 529 Education Savings Plans
  • IRS Will Process Tax Refunds As Scheduled Despite Government Shutdown
  • IRS Provides FAQs on 2019 Federal Income Tax Deadline Extensions

About Edward A. Zurndorfer

Edward A. Zurndorfer is a Certified Financial Planner (CFP®), Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019

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