For many of us, our budgets have been pushed to the limit due the impact of the coronavirus. Because of this, tax bills may present a challenge this year. However, many states and the federal government are providing relief to taxpayers who are being severely hit by the COVID-19 pandemic. Here are some of the highlights:
Federal Income Tax. On March 21st, the Treasury Department and the IRS announced that the federal income tax filing due date was automatically extended from April 15th to July 15, 2020.[1] The IRS stated that this deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax. There are no any additional forms to be filed; it’s automatic.[2]
If you’re having trouble paying your tax bill, the IRS says not to panic (easier said than done!) But if you can’t pay the full amount of taxes you owe, go ahead and file your return by the deadline (now July 15th) and pay as much as you can to avoid penalties and interest. Contact the IRS to discuss your payment options, which may include a short-term extension to pay, an installment agreement, an offer in compromise, or by temporarily delaying collection by reporting your account as currently not collectible until you’re able to pay. In some cases, the IRS says they may be able to waive penalties (but not the interest charges that accrue) on unpaid tax bills.[3]
State Income Tax. According to the American Institute of Public Accountants (AICPA), all states with a personal income tax have extended their April 15th deadlines, many of which are now set at July 15th.[4] There are a few states with other tax deadlines, so check with your specific state department of taxation. Also, business tax filings are included in these new later due dates.[5]
State Property Taxes. If you own a home, you may be able to take a break from paying property taxes through a crisis like the pandemic. In California for example, property taxes have to be five years overdue before the county can hold a tax sale for the property.[6]
What Are My Options If I Can’t Pay My Federal Taxes?
These are regular options from the IRS and weren’t specifically instituted for the pandemic:
IRS Installment Plan. The IRS says that if you can’t pay your tax bill by the time it’s due, don’t avoid the bill. File Form 9465, Installment Agreement Request, to set up an installment plan with the agency. This application can be done online, which also reduces your installment payment user fee, which is the fee the IRS charges to set up a payment plan.[7]
IRS Offer in Compromise. You may be able to settle your IRS tax bill for less than you owe with an Offer in Compromise (OIC). The downside of this option is that you’ll have to offer at least as much as your net worth – which is everything you own, reduced by your debt. An OIC is similar to bankruptcy and should be used only as a last resort.[8]
The IRS May Give You a Deferment. If your income is low, and you have few assets, the IRS might classify your debt as “currently not collectible.”[9] While the IRS stops attempting to collect the tax debt, it continues to calculate interest and penalties on the debt. In addition, the IRS will retain any tax refunds you might be entitled to in the future and will apply those refunds to your outstanding balance due in what is called a “refund offset.”[10] The IRS might also file a Notice of Federal Tax Lien against your property. This would appear on your credit report and informs creditors that you owe an outstanding balance to the IRS.[11]
Takeaway
Stretching your budget in this pandemic is very hard for many, but the government has put some plans in place to help.
For more information on this and other tax matters, consult the IRS or a qualified tax professional.
Reference:
[1] IRS, Tax Day now July 15: Treasury, IRS extend filing deadline and federal tax payments regardless of amount owed, IR-2020-58 (March 21, 2020). Retrieved at https://www.irs.gov/newsroom/tax-day-now-july-15-treasury-irs-extend-filing-deadline-and-federal-tax-payments-regardless-of-amount-owed.
[2] Id.
[3] IRS, What if I can’t pay my taxes? (Last reviewed August 2, 2019). Retrieved at https://www.irs.gov/newsroom/what-if-i-cant-pay-my-taxes.
[4] State Tax Filing Guidance for Coronavirus Pandemic, AICPA, (Updated April 23, 2020). Retrieved at https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf.
[5] There are seven states not affected by individual income taxes because they do not have personal income tax (AK, FL, NV, SD, TX, WA, and WY), and two states have no tax on wages (NH and TN – interest and dividends). In addition, two states (SD and WY) have no corporate income tax and no gross receipts tax, and four states (NV, OH, TX, and WA) have gross receipts taxes instead of corporate income taxes.
[6] California County Tax Collectors’ Reference Manual, Chapter 8000: Sale of Tax-Defaulted Property (Updated July 2019). Retrieved at https://www.sco.ca.gov/Files-ARD-Tax-Info/Tax-Collector-Ref-Man/ctcrm_chapter8.pdf, at p. 12.
[7] IRS, Instructions for Form 9465 (Revised December 2019). Retrieved at https://www.irs.gov/pub/irs-pdf/i9465.pdf.
[8] IRS, Offer in Compromise (update April 14, 2020). Retrieved at https://www.irs.gov/payments/offer-in-compromise. The IRS notes that “[e]ffective immediately, all Offer applications must be received on the Form 656 with a revision date on or after August 14, 2019. The updated Form 656 includes new low-income certification guidelines and instructions.” Id.
[9] William Perez, Owe Money to the IRS But Can’t Pay? You May Be Eligible for Help, The Balance (November 7, 2019). Retrieved at https://www.thebalance.com/currently-not-collectible-3193461.
[10] Id.
[11] IRS, The IRS Collection Process Publication 954 (Revised July 2018). Retrieved at https://www.irs.gov/pub/irs-pdf/p594.pdf.
