The Treasury Department has suggested for several days that it would be delaying April 15, 2020 tax payments, per my suggestion from last week. This afternoon the administration released its guidance on the delay, answering a number of technical questions. Unfortunately, the guidance falls short of the relief and certainty taxpayers need in the face of the COVID-19 crisis. It will create headaches for filers and further confuse an already complicated tax filing season.
According to the guidance document, individuals and corporations can delay their April 15th tax liabilities for up to 90 days to July 15th. Individuals can delay up to $1 million and corporations up to $10 million. The individual limit is high due to the prevalence of pass-through businesses that file under the individual tax code. The delay also includes any Quarter 1 estimated tax payments, which are due on April 15th for 2020 as well.
However, Treasury did not include a similar reprieve for the deadline to file tax returns. While they can delay their tax payment, they still must prepare and submit their tax form.
This is needlessly complex. Traditionally, individuals can file for an extension of up to six months and the Internal Revenue Service (IRS) will approve their request. But in this time of immense stress and anxiety, the federal government is still going to force individuals and businesses to deal with complex tax paperwork, even as their livelihoods may be under threat from a global health pandemic. Rather than spending time visiting with tax preparers and wading through a sea of paperwork, we should be encouraging them to stay home and focus on responding to this crisis in their own communities and families.
The delay also makes little sense in relationship to the calendar. While Quarter 1 estimated tax payments will be delayed until July 15th, Quarter 2 payments will still be due on June 15th. Additionally, it creates a tricky situation for tax filers. If an individual doesn’t file and doesn’t ask for an extension because they misunderstood Treasury’s guidance, they are setting themselves up for large penalties come July 16th for a “failure to file.”
In a time of unprecedented public health and economic challenges, Treasury’s guidance is as likely to confuse as it is to clarify. Reporting of the tax payment delay has already been misunderstood in many circles as an extension of the tax filing deadline as well, and the average taxpayer or small business is unlikely to know that they must file, but not yet pay, their taxes.
Though Treasury’s guidance is a worthwhile step in the right direction, it’s clear that Congress must act to clarify the situation and provide the kind of relief that is needed. Any legislation should do the following:
- Delay tax filing requirements for six months
- Delay 2019 tax payments for six months
- Delay both Quarter 1 and Quarter 2 payments for six months
- All delays, both filing and payment, should be automatic rather than requiring separate approval or paperwork
- Any forms submitted to the IRS should allow e-signatures to ease paperwork burdens on taxpayers that are following federal guidance to avoid social contact.
As policymakers look for ways to ensure that businesses and individuals have liquidity to weather the COVID-19 crisis, this is a surefire way to achieve it. Last year, the Treasury collected $229 billion in March, but collected $535 billion in April. It is a strong month for federal revenues; delaying payments due on April 15th will provide much needed financial relief to affected individuals and businesses and will delay millions of hours spent on compliance.
As Congress works through additional responses to COVID-19, a simple and transparent extension of all tax filing and payment obligations should be a key feature.