Some still have to pay taxes by April 15 despite the new May 17 deadline
IRS and Treasury Department Extend Tax Reporting Season, Extending Deadline to May 17 from April 15.
The extension will not help all taxpayers, however.
That’s because it doesn’t include estimated tax payments, which are still due on April 15.
Some taxpayers must make estimated quarterly tax payments throughout the year to avoid penalties. The estimated tax is used to pay levies on income that is not subject to withholding, including self-employment income, interest, dividends, rent, and child support, according to the IRS.
This primarily affects the self-employed, as well as those with small businesses such as sole proprietors, partners, and shareholders of S-corporation – typically anyone who does not work for an employer who withholds taxes from their paycheck. pay.
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In the 2018 tax year, over 9.5 million individual returns filed for the year included estimated payments. This represents approximately 6% of the total of 154 million reports submitted.
“While we appreciate the IRS’s recognition that an extension of the filing deadline is indeed necessary, the announcement is far too selective about who receives relief,” said Barry Melancon, expert. chartered accountant, chartered global management accountant and chief executive officer of the American Institute of CPAs, in a statement on Wednesday. “In fact, the taxpayers who are most likely to benefit from this additional delay are the taxpayers who are able to meet the original filing deadline.”
In 2020, the IRS adjusted the deadline for the first of four estimated tax payments to July 15 from April 15, the same extension as the overall tax filing deadline. However, he did not postpone the remaining three payments – the second quarterly payment was also due on July 15, 2020.
More work for the taxpayer
Not including estimated payments effectively cancels the deadline extension for some taxpayers, according to the AICPA.
This is because the calculation of estimated tax payments includes other tax preparations, all of which will need to be completed by the April 15 deadline.
To avoid penalties for underpayment of estimated taxes, people who owe more than $ 1,000 in tax after subtracting withholdings and credits must pay the IRS at least 90% of tax for the year in course or 100% tax for the previous year, whichever is less. .
This means that in order to calculate an estimated quarterly payment, taxpayers must either project their income for the year or have the previous year’s income on hand as they would have for their tax return.
“You still have to fill out the 2020 return to get a net number to roughly estimate,” said Rhonda Collins, director of tax content and government relations at the National Association of Tax Professionals. “So this will still create a bit of work for the taxpayer.”
In addition, small businesses and the self-employed who pay estimated taxes have been particularly affected by the Covid pandemic and may face multiple issues that would complicate tax filing. Some may have loans through the Paycheck Protection Program, an Economic Injury Disaster Loan, or other grant.
“By confusing all of these things on top of each other, there is really no relief for these people,” Melancon said.
No relief for most small businesses
Certainly, meeting the estimated April 15 tax deadline can help those who need to make quarterly payments manage their cash flow properly throughout the year, said Sheneya Wilson, CPA and founder of Fola Financial in New York.
Even if you make estimated payments, you can still figure out what you owe on April 15 and take advantage of the extension to file your tax return later, Wilson said.