One of the provisions resulting from the passage of the CARES Act on March 27, 2020 is that the IRS extended the filing deadline for 2019 federal income tax returns to July 15, 2020. Most states with income taxes likewise extended their filing deadline to July 15.
This means that individuals who were unable to complete the preparation of their 2019 returns by the original due date of April 15, 2020 received an automatic extension of three months to file their returns. No formal extension application was required, and no late filing penalties or interest will be charged if there is a balance due when the return is filed no later than July 15.
This column discusses additional implications of the 2019 federal income tax filing extension to July 15, 2020.
What the 2019 income tax filing deadline means and requesting a filing extension
Any individual who has not filed his or her 2019 federal (and who lives in a state with a state income tax) and state income tax return has a deadline of midnight July 15, 2020 to file his or her tax returns. If additional time is needed to file one’s 2019 federal income tax return, an extension to file can be made using the IRS’ Free File. In so doing, the individual will receive a three-month extension to Oct. 15, 2020 to file his or her 2019 federal income tax return.
However, individuals should be aware that an extension to file one’s income tax return until Oct. 15, 2020 does not give the individual an extension of three months to pay any balance due on the 2019 return. In fact, when requesting an extension an individual needs to estimate and pay the anticipated balance due with the extension. If a refund is due, then no payment need be made with the extension. A Form 4868 that is mailed must be postmarked no later than July 15, 2020. Free File must be performed online no later than midnight July 15.
There are two ways to pay any balance due with an extension request. The first way is to pay by check using Form 4868. On Form 4868 is a worksheet to estimate any balance due on 2019 federal taxes. The address where to send the Form 4868 and check payment is included with Form 4868.
Perhaps the preferred way to file for an extension and make any payment due is through IRS’ Direct Pay which can be found at https://www.irs.gov/payments/direct-pay.
Paying a balance due on a previously filed 2019 federal income tax return
There are individuals who filed their 2019 federal tax returns prior to the enactment of the CARES Act on March 27, 2020. One of the provisions of the CARES Act is the extension to pay any balance due on a 2019 federal income tax return to July 15, 2020. This provisions includes individuals who filed their returns before March 27 and elected to have their balance due amounts paid through a bank account debit close to the original due date of April 15, 2020. Under IRS guidance written immediately following the CARES Act passage, these individuals could cancel that request to have a bank account in late March or early April 2020 in order to have a later debit, as late as July 15, 2020.
The IRS requires these individuals to formally reschedule these withdrawals from bank accounts. The scheduled withdrawals must be made no later than July 15th. Any individual who must reschedule a withdrawal via a bank debit must do so as soon as possible by going to: https://www.irs.gov/payments/direct-pay.
Estimated tax payments for 2020
Individuals who owe federal estimated tax payments for 2020 should be aware that estimated tax payment #1 – originally due on April 15, 2020, and estimated tax payment #2 – originally due on June 15, 2020, are both due July 15, 2020
There are two ways to make estimated tax payments. The first way is by check, money order, or cashier’s check. Individuals making their payments this way should include the appropriate Form 1040-ES payment voucher with their check or money order. Form 1040 ES payment vouchers may be downloaded at: https://www.irs.gov/forms-pubs/about-form-1040-es.
The other method that 2020 estimated tax payments can be made is electronically through Direct Pay – https://irs.gov/payments/direct-pay.
Note that the following with respect to Direct Pay:
(1) individuals who owe a 2019 income tax liability as well as must pay estimated taxes for 2020 have to make two separate payments on or before July 15, 2020. Up to two separate Direct Pay payments can be made each day; and
(2) the first quarter and second quarter 2020 estimated tax payments may be combined into one payment with Direct Pay.
2019 IRA contribution deadline is July 15, 2020
July 15, 2020 is also the deadline to make a 2019 IRA contribution. For 2019, individuals younger than age 50 as of Dec. 31, 2019 can contribute a maximum $6,000 to a traditional IRA (deductible or nondeductible) and/or Roth IRA. Those over age 49 as of Dec. 31, 2019 can contribute a maximum $7,000 to an IRA for the year 2019.
Most federal employees are not eligible to contribute to a deductible traditional IRA. This is because they are covered by a pension plan and their income is too large. This means that an employee (and spouse, if married) are eligible to contribute to a nondeductible traditional IRA and/or a Roth IRA.
For those employees who have already filed their 2019 returns, they too have until July 15, 2020 to make their 2019 contribution. If they intend to contribute to a nondeductible traditional IRA, then they need to file IRS Form 8606 (Nondeductible IRAs). Although Form 8606 is filed with one’s income tax return in the year of contribution, Form 8606 can be filed by itself with no penalty, if one has already filed his or her 2019 return. Form 8606 needs to be filed no later than July 15.
If an individual contributes to a deductible traditional IRA, then the contribution is reported as “adjustment to income” on one’s federal income tax return, IRS Form 1040 Schedule 1. An adjustment to income reduces one’s gross income resulting in less taxable income and a decreased tax liability. If an individual already filed his or her 2019 federal income tax return and before July 15 the individual makes a deductible IRA contribution, then an amended 2019 federal income tax return (Form 1040X) should be filed after July 15. On the amended return the IRA contribution should be reported, resulting in a federal income tax refund. If a 2019 state income tax return was previously filed, then an amended state income tax refund should be also filed after July 15.
Roth IRA contributions have income limitations. The following table summarizes the limits for contributing to a Roth IRA for 2019.
* Modified Adjusted Gross Income is: Adjusted Gross Income (AGI) plus foreign earned income exclusion plus foreign housing exclusion or deductions plus qualified excluded U.S. savings bond interest plus student loan interest deduction plus tuition and fees deduction
No special forms have to be filed with one’s income tax return when making a 2019 Roth IRA contribution.
A suggestion for employees or annuitants who is eligible and who plans to make a 2019 IRA contribution before the filing deadline of July 15, 2020: Any employee or annuitant making a 2019 IRA contribution (no matter what type of IRA) should make sure they notify their IRA custodian that the contribution is for 2019 and not for 2020. Since it is the year 2020, the IRA custodian may assume that the IRA contribution is for 2020 and not for 2019. The deadline for making 2020 IRA contributions is April 15, 2021.