Tuesday, July 7, 2020
Tax day 2020 is July 15, and for some taxpayers it could be a financial nightmare. COVID-19 prompted the IRS to delay the usual April 15 federal tax return deadline to July 15, but it isn't just 2019 tax returns that are due. The IRS also postponed the first two 2020 quarterly estimated-tax payments which are usually owed by April 15 and June 15.
On July 15 it's possible for someone to owe half of their estimated taxes for 2020 plus any taxes owed with their 2019 tax return. This is is bad news for people whose income has tanked in the past few months due to the pandemic. There are two ways to avoid a penalty: (1) you owe less than $1,000 in tax for the year and (2) you pay at least 90% of tax owed for the current year (2020), or 100% of the tax you paid for the prior year (2019), whichever is smaller.
If you don't pay enough taxes, IRS Form 2210 helps you calculate any penalty for underpayment of estimated tax. It is not clear whether or not the IRS will reduce or waive the penalty in 2020 or lower the safe-harbor percentages, but it is a possibility that these things will be considered.
In addition, there are four special issues in 2020 related to estimated-tax payments and the calculation of how much you owe:
- your stimulus check
- paycheck protection program loans
- unemployment benefits
- ongoing financial hardship from the coronavirus pandemic
See Bruce Brumberg, Estimated Taxes Due July 15: Tax Return Pros Warn About Special Issues For 2020, Forbes, June 19, 2020.
Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention.