4 Things to Consider Before Taking Advantage of the Coronavirus Tax Extension
If you owe taxes for 2019, you just got an extra 90 days to pay up as part of the federal government’s coronavirus relief efforts.
Most taxpayers who owe the IRS will now have until July 15 to make their payments, Treasury Secretary Steven Mnuchin said at a press conference Tuesday. During the 90-day window, taxpayers won’t be charged interest or penalties for what they owe from last year.
Wondering if you’ll qualify for the extended timeline? You probably will, as the extension applies to individuals who owe up to $1 million and corporations that owe up to $10 million.
4 Things to Know About the 2020 Tax Extension
The IRS hasn’t released the full details of the extension, but we’ll update this post as more information becomes available. Here are a few things to keep in mind, though, if you haven’t filed your return.
1. You Still Need to File a Return – But You Have Until July 15
On March 20, Mnuchin announced the IRS would also be extending its deadline for filing taxes by three months. As a result, individuals and businesses can file their taxes as late as July 15 without incurring a penalty.
However, Mnuchin encouraged people who can file early to go ahead and do so. He emphasized that people who are expecting a tax refund should especially file early so they can get their refund as soon as possible
2. The IRS Is Still Processing Refunds as Usual
The average tax refund is $3,012 for 2020, according to the latest IRS stats, and despite coronavirus, refunds are still being processed. So if you’re getting a refund, go ahead and file that tax return, particularly if you’re worried about losing your job or a significant chunk of income.
It takes more time to get your refund the longer you wait. That means that if you’re anticipating a refund and you expect you’ll need cash soon, you should file ASAP.
3. Your State Income Taxes Could Be Due Sooner
If you live in one of the 43 states with its own income taxes, you’ll need to check with your state about its deadline, because the 90-day extension applies to federal taxes only. Check out the American Institute of Certified Public Accountants’ list of state tax deadlines for the latest information.
4. If You Can’t Afford to Pay in July, You’ll Still Need to File
The idea of owing the IRS when you can’t afford to pay may send shivers down your spine, but the situation probably isn’t as bad as you think.
If you file your return on time but can’t make the payment, you’ll owe 0.5% per month of your unpaid taxes, up to 25% of what you owe. But if you don’t file a return? The penalty increases 5% per month, up to 25% of the unpaid bill.
Should You Take Advantage of the 90-Day Extension?
If you can’t afford your tax bill and you’re worried about your job or paying bills as coronavirus havoc continues, it absolutely makes sense to keep the cash in your pocket for as long as possible.
If you’re still experiencing hardship come July, it might even make sense not to pay the full amount you owe and work out a payment plan with the IRS instead. Think about it: If you’re hit with a 0.5% a month penalty, that amounts to 6% per year. That’s a lot less than what you’d likely pay in interest for a credit card or loan.
But if paying your tax bill now won’t put your finances in jeopardy, you might as well pay up. Coronavirus or not, if you owe money, the IRS will never forget.
Robin Hartill is a senior editor at The Penny Hoarder.