The IRS and Treasury Department have extended the tax filing season, pushing the deadline to May 17 from April 15.
The extension won’t help every taxpayer, however.
That’s because it does not include estimated tax payments, which are still due April 15.
Some taxpayers must make quarterly estimated tax payments throughout the year to avoid penalties. Estimated tax is used to pay levies on income that is not subject to withholding, including earnings from self-employment, interest, dividends, rent and alimony, according to the IRS.
This mostly affects self-employed individuals, as well as those with small businesses such as sole proprietors, partners and S-corporation shareholders generally, anyone who doesn’t work for an employer that withholds taxes from their paycheck.
In the 2018 tax year, more than 9.5 million individual returns filed for the year included estimated payments. That’s about 6% of the total 154 million returns submitted.
“While we appreciate the IRS recognition that a filing deadline postponement is indeed necessary, the announcement is far too selective in who is receiving relief,” said Barry Melancon, a certified public accountant, chartered global management accountant, and president and CEO of the American Institute of CPAs, in a Wednesday statement. “In fact, the taxpayers who are most likely to benefit from this additional time are taxpayers who are able to meet the original filing deadline.”
In 2020, the IRS did adjust 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, it didn’t push back 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 nullifies postponing the deadline for some taxpayers, according to the AICPA.
That’s because calculating estimated tax payments includes other tax preparation, which will all need to be completed by the April 15 deadline.
To avoid penalties for underpaying estimated taxes, people who owe more than $1,000 in tax after subtracting withholding and credits must pay the IRS at least 90% of the tax for the current year or 100% of the tax for the prior year, whichever is smaller.