The Trump administration has announced that most individuals and businesses will be allowed to delay paying their federal tax bills for 90 days as part of an emergency relief plan amid the coronavirus pandemic.
Some questions and answers about the delay and its potential impact on the U.S. economy.
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DO I STILL NEED TO FILE?
Yes.
The details on the program are still scant. But as of now, taxpayers need to file their federal tax returns by the traditional April 15 deadline. The 90-day extension is solely for the money that is due. Those delayed payments are now due July 15.
However, taxpayers who are facing difficulty filing on time always still have the option to request a six-month extension. Visit the IRS website for more details.
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WHO GETS TO WAIT TO PAY?
Treasury Secretary Steven Mnuchin said individuals who owe less than $1 million will be able to delay paying. Corporations will be able to defer payment on taxes due up to $10 million. Mnuchin said only the “super rich” would be excluded.
However, because details are still pending, it’s unclear if the delay applies to trusts or whether people who make quarterly payments on their taxes will still need to make that first payment by April 15, said Lance Christensen, a partner at the accounting firm of Margolin Winer & Evens.
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WILL I BE PENALIZED FOR WAITING TO MAKE PAYMENTS?
No. During this unprecedented delay, individuals and corporations will not be subject to interest or penalty payments.
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WHAT IF I AM EXPECTING A REFUND?
If you are expecting a refund, continue to file as usual. As of now, the IRS is still processing returns and sending out refunds.
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DOES THIS APPLY TO MY STATE TAXES TOO?
No. Check with your state tax authority to see about any changes to due dates. Some are not extending their deadline, others are following the federal model and others still are setting their own deadlines. California, for example, has bumped its date for filing and payment of state taxes to June 15.
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HOW WILL THIS HELP THE ECONOMY?
It’s unclear.
Treasury Secretary Steven Mnuchin estimates that taxpayers will be able to keep $300 billion in the economy for now. And some tax and economic experts say any extra cash in the hands of Americans is helpful because many will be struggling to get by.
However, some say the tax delay will not provide widespread financial relief.
Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center, says he thinks it will have a limited impact. That is in part because about three-quarters of Americans get refunds in any year and won’t benefit from a delayed tax bill.
The IRS expected about 150 million individual tax returns, as of the most recent count, about 68 million taxpayers have already filed.
Those who file early tend to be low- and middle-income individuals who are getting a refund. Higher-income individuals, or those with complex taxes who owe money to the government, tend to file later, Gleckman said. This move will provide some relief for them, but Gleckman warns that higher income individuals have extra cash, and they tend to save it not spend it. That leaves lower income individuals, who need it most and are more likely to go out and spend it, without relief from this move.