Personal Finance Insider writes about products, strategies, and tips to help you make informed decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective.
- July 15 is Tax Day this year, when federal income taxes – and many state taxes – are due for 2019.
- This is also the deadline for the first two estimated tax payments of 2020, initially due on April 15 and June 15.
- Business owners, freelancers, and gig workers who owe both state and federal taxes could have up to six tax bills owing on July 15.
- A CPA recommends prioritizing state taxes over federal taxes and paying your 2019 balance before making estimated payments.
- The IRS offers reasonable long-term and short-term installment payment plans if you can’t fully cover your balance.
- TaxAct currently offers 35% off federal and state returns »
Tax season was more than half over when it was interrupted by the coronavirus pandemic in March.
As businesses closed and life moved indoors and online for millions of Americans, the Treasury Department postponed the tax deadline to July 15, three full months later than usual.
the extension of time was automatic, applying to taxpayers required to file a federal return tax return for income earned in 2019. But the guidelines confused some people, namely those who owed estimated tax payments before July.
It took a few weeks, but the IRS finally clarified that the relief applied generally: would get an automatic extension.
In other words, anyone with a tax liability for 2019 or the first half of 2020 could throw the bucket on the road. The previous deadlines for the payment of estimated taxes were April 15 and June 15. The September 15 and January 2021 deadlines are still in effect.
The fact that no immediate payment was due was a welcome relief for taxpayers. Tens of millions of people, including concert workers, freelancers and contractors were out of work and struggling to make ends meet as the economy practically came to a standstill. Stimulation controls and unemployment benefits helped fill in the gaps, but taxes were not a priority.
“When the government extended until July 15, most taxpayers caught their breath and were more concerned about obtaining government funding,” Paul Miller, CPA and founder of Miller & Company, a New York-based CPA firm, told Business Insider US.
The tax season as a whole has been “unusual and never-ending,” Miller said, and it is now becoming evident that deadline extensions have created a bottleneck in tax bills for the self-employed.
Up to 6 tax bills may be due on the same day
The US tax system is pay-as-you-go. This is why the IRS requires that anyone who does not collect their federal income tax from every paycheck by their employer make estimated payments throughout the year.
That is, anyone earning non-W-2 income from employment as a independent contractor will need to estimate their tax liability and make a payment to the IRS each quarter.
Since the first two estimated tax payment deadlines of 2020 have been pushed back, Miller notes that many of these workers may now owe up to six separate payments on July 15 – their federal and / or state balances for 2019, plus their federal and / or state balance. estimated payments for 2020.
Edward Karl, CPA and Vice President of Taxation at The American Institute of Chartered Accountants, or AICPA, told Business Insider US that this reporting season is a challenge for taxpayers and tax professionals who help with tax preparation. Many are concerned about their customers’ ability to pay, he said.
During the 90 day deferral, interest and penalties on tax payments were waived. They are expected to start piling up as usual on July 16, barring further relief from the government.
Pay as much as you can and consider a payment plan
The IRS says that if you plan to owe more than $ 1,000 in income taxes for the year, you usually have to pay at least 90% of your current federal tax – or 100% or your federal tax payable on the declaration of the previous year, according to is smaller – to avoid a penalty for underpayment.
Miller urges taxpayers to pay off their outstanding balances as much as possible by July 15. If you don’t have enough money to make each payment, prioritize your 2019 balance over your estimated payments, he said.
Most states have also moved their tax return and payment deadlines to comply with the federal extension. If you owe both federal and state taxes, Miller recommends “paying the state in full and dealing only with the federal government.”
“Pay what you can afford. I think the government will be lenient with the penalties,” Miller said.
And remember the IRS offers reasonable long and short term offers payment plans at interest rates well below those of most banks. You might even be able to settle the bill for less than you owe, called a offer in compromise, or request a postponement until you can make a payment. Offers in Compromise and Deferral Requests require additional documentation and must be approved by the IRS.