Due to COVID-19, the IRS postponed almost all tax payments due in the past few months until July 15, 2020.
Now—it’s time to pay Uncle Sam.
If you have the cash, you may be wondering what’s the best way to make your payments.
If you don’t have the cash, you may not know what to do.
Either way, we’ll tell you what you need to know to make your July 15 tax payments as pain-free as possible.
What’s Due on July 15
Your 2019 individual tax return balance due,
Your 2019 calendar-year C corporation balance due, and
Your 2020 first and second quarter estimated tax payments.
If you don’t pay on July 15, you’ll start to accrue penalties and interest on the above amounts beginning on July 16, 2020.
And don’t forget that even if you file an extension for your 2019 tax returns, you still have to pay your 2019 balance due by July 15, 2020, to avoid penalties.
Mailing Payments
We don’t recommend mailing your federal tax payments if you can avoid it. With the IRS mail backlog from the COVID- 19 shutdown, it could take a long time to get processed, or the IRS could misplace the payment.
If you decide to pay your 2019 individual balance due by check:
Make the check payable to “United States Treasury” and put your Social Security number and “2019 Form 1040” on the memo line of the check.
Mail the payment to the correct address.
If you decide to pay your 2020 individual estimated tax payments by check:
Complete the Form 1040-ES payment voucher.
Write one check totaling your combined first and second quarter payments. (1)
Make the check payable to “United States Treasury” and put your Social Security number and “2020 Form 1040-ES” in the memo line of the check.
Mail the payment to the correct address.
And, remember, the IRS will consider your payments timely made if postmarked on or before July 15, 2020. (2)
Electronic Payments
You have two ways to make your tax payments electronically:
Electronic Funds Tax Payment System (EFTPS)
We like the IRS Direct Pay system more than EFTPS for filing your individual tax return and making estimated tax payments.
In addition, IRS Direct Pay recently changed to allow you to schedule payments up to one year in advance, so you can pre-schedule all your quarterly estimated tax payments.
Don’t Overpay Your Estimates
Due to the economic troubles from COVID-19, cash is king. The last thing you want to do is send too much to the IRS in estimated tax payments while not having enough to meet your personal needs.
You’ll avoid an estimated tax payment penalty on your 2020 individual return as long as one of the following occurs: (3)
You owe less than $1,000 in tax on your 2020 return after subtracting your withholding and credits, or
You paid at a minimum the smaller of 90 percent of your 2020 total tax or 100 percent of your 2019 total tax.
If you will have both lower income and lower tax in 2020 compared to 2019, you would overpay if you use 2019 as your estimated tax payment benchmark. In this case, estimate your 2020 tax to avoid overpaying your estimated tax.
When you figure how much tax you’ll owe in 2020, consider the following factors that could reduce your required payments:
Reduced income from your business or rental activities.
Self-employment tax deferral, which we discuss in Making Smart Decisions from the COVID-19 Tax Relief Buffet.
Whether you’ll get a 2020 recovery credit, which we discuss in COVID-19: Important Tax Breaks from the CARES Act.
Self-employed sick and family leave credits, which we discuss in COVID-19: Significant Payroll and Self- Employment Tax Relief.
Net operating loss carryforwards from prior years, as we discuss in Quick Cash: COVID-19 CARES Act Creates Five-Year NOL Carryback.
What if I Can’t Pay?
Penalties and interest start accruing on July 16, 2020, if you don’t pay your 2019 tax return balance due.
The IRS may or may not give estimated tax penalty relief for tax year 2020 payments. That relief, if any, will come late this year or early next year.
If you still have a lot of uncertainty about your 2020 tax liability, consider the following:
Pay off your 2019 tax return balance,
Make a lower 2020 estimated tax payment on July 15, 2020, and
Adjust your remaining 2020 estimated tax payments as you get more certainty about your 2020 tax liability.
Takeaways
The taxman is finally coming on July 15, 2020, and the IRS wants your
2019 individual tax return balance due,
2019 calendar-year C corporation balance due, and 2020 first and
second quarter estimated tax payments.
We strongly recommend paying electronically. But if you do mail your payment(s), be sure to
notate your check correctly;
send your check to the correct IRS address; and
get your envelope to the post office to ensure that it has a postmark on or before July 15, 2020.
You avoid an estimated tax payment penalty on your 2020 individual return as long as one of the following occurs:
You owe less than $1,000 in tax on your 2020 return after subtracting your withholding and credits, or
You paid at a minimum the smaller of 90 percent of your 2020 total tax or 100 percent of your 2019 total tax.
Let Us Help You
Due to the economic downturn and COVID-19 tax benefits, basing your 2020 estimated tax payments on your 2019 total tax will likely result in overpayment. Instead, make a reasonable estimate of your 2020 total tax and make your payments based on that amount. If you need help estimating your 2020 tax payments (or with any other topic) be sure to reach out via email or phone: dtullis@tullisconsulting.com or (908) 617-0167.
(1) IRS Filing and Payment Deadlines Questions and Answers.
(2) IRC Section 7502(a).
(3) IRC Section 6654(d)(1).