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Taxes in July? Only in 2020.
Deadlines are quickly approaching for taxpayers who have not yet filed federal income taxes this year.
That’s because the Treasury Department extended its standard April 15 Tax Day deadline in response to the COVID-19 pandemic. Taxpayers now have until July 15 to file their tax returns—and pay any income taxes owed for 2019 to the IRS.
Here’s a rundown of everything you need to know about filing your federal taxes before next week’s deadline, and how you can request an extension or begin a payment plan if you need a bit more time.
What’s Due on July 15?
If you already filed your 2019 tax return, then you shouldn’t have to take any further action.
However, if you put off filing taxes under the three-month extension period, you must file your 2019 income tax returns and make any necessary payments to the IRS by July 15. This deadline is for federal income taxes; your state has its own rules for filing state income tax returns (more on that below).
In addition to 2019 tax filings, self-employed or contract workers who must typically report first and second quarter earnings by April 15 and June 15, respectively, are required to file estimated income tax payments for both by the July 15 deadline.
Need more time? If you know you’ll be unable to file your federal income tax return by the deadline, you can request another extension until Oct. 15 by filing Form 4868. This must also be completed by July 15.
This is an extension for filing your federal tax documents, not for paying any taxes you owe. So when are taxes due? Any taxes you owe for 2019 must still be paid by July 15 in order to avoid accruing interest and penalties.
Use your tax documents to estimate your balance due (which you’ll include on the extension form) and pay what you can toward that amount. Even if you can’t pay in full, contributing any amount you’re able can lessen your penalty and interest burdens.
What Happens if I Don’t Pay on Time?
Any balance you leave unpaid by the deadline will incur daily compounding interest as well as a monthly late payment penalty. There are separate penalties for failure to file and failure to pay, which can increase the longer your return or payment remains outstanding.
Penalties can be steep. Failure to pay may result in a fee of 0.5% of your taxes owed, until you pay in full or the charge equals 25% of your total balance. Failure to file may result in a fee equal to 5% of your taxes owed. Each of these fees incurs monthly, and the full monthly charge applies even if you pay your balance before the month ends. If you fail to file within 60 days of the deadline, you’ll incur a penalty of 100% of outstanding taxes on your return that weren’t paid on time or $435, whichever is less.
For example, if you owe $2,000 in taxes, failure to file your return and pay your taxes could result in fees of more than $700 within the first three months, in addition to interest.
You can find more details about penalties and interest on taxes owed on the IRS website.
How Do I File Taxes?
If you have a straightforward tax return and want to file yourself, check out the IRS’ resource page for taxpayers, which includes directions for its Free File software. You can use this to file your taxes directly for free if you qualify with an income of $69,000 or less.
You may also consider using online tax software, such as TurboTax or H&R Block. These programs may charge a fee for filing, which can vary depending on the details of your income and filing needs. When upgrading from the free versions of these services, basic itemized returns may cost less than $50, while versions suited for more complex filing may reach upwards of $100.
The complexity of your tax return can help inform the best way to file, according to Vid Ponapalli, founder of Unique Financial Advisor & Tax Consultants in Holmdel, New Jersey. Running a business, owning a home, having children, and earning income on your investments are just a few things that can increase the amount of forms you’ll need and which complicate your return.
“If you have only a W-2 based income and you’re taking the standard deduction, for example, you can easily do it online yourself,” he says. “Whereas if you have business or a partnership or self-employment income, it gets a little more complicated.”
For more complex income reporting, working with an accountant or tax preparer may save you money and time. Even if you don’t use a professional to complete your taxes, it may be worth paying for a review of your return if you have any complexities to consider or questions before submitting.
If you haven’t already scheduled an appointment, though, be prepared for appointments to already be full; filing for an extension and making an estimated payment may be your best option this close to the deadline.
What About State Taxes?
Depending on which state you live in, the last day to file your state income tax returns may also have been pushed to July 15, but you should check your state’s individual requirements.
Most states followed the July 15 date set by the IRS, while some state filing deadlines, including Idaho and Virginia, have already passed. You can find a complete compiled list of state tax filing due dates from the American Institute of CPAs.
Like federal extensions, your state may also allow an extension for filing, though payments are still due by state deadlines. Check with your state’s tax agency for details about necessary applications for state filing extensions.
Also keep in mind that any of the above filing methods may require additional charges for state tax filing. State income taxes can get complicated for workers who cross state lines or who have worked in multiple states over the past year, so consider working with a professional if you’re unsure about your state tax obligations.
What Alternative Payment Options Are Available?
The IRS is requiring all taxpayers to complete 2019 tax payments by July 15 or face penalties and interest payments. But if you’re facing continuing hardship due to the pandemic or simply don’t have the cash on hand, there are options.
If you need longer to gather your payment, consider applying for a short- or long-term payment plan with the IRS directly. These payment plan applications must also be completed by the July 15 deadline, may come with a fee, and eligibility is based on your specific situation.
The short-term plan gives you 120 days or less to complete your payment. There are no fees for the plan itself, but you will continue to accrue penalties and interest on your outstanding balance until it’s paid in full within that period. Interest is calculated quarterly and compounds daily on both balances and penalties. The current interest rate charged by the IRS is 3%.
The long-term plan works similarly to a personal loan, allowing you to make your tax payment in installments with interest. Interest is still compounded daily at the current 3% rate, but under an approved installment plan, failure to pay penalties are reduced from 0.5% of your balance to 0.25%. You may choose to submit your monthly payments or have them directly debited from your checking account.
Under these plans, you may accrue penalties and interest until your balance is paid off, but unlike taking out a personal loan or using your credit card to pay your tax balance, payment plans through the IRS are not reported to credit bureaus and won’t affect your credit score. It’s important to keep in contact with the IRS if you’re unable to make payments or stick to your plan to avoid any long-term credit consequences from collections.
You can apply for a payment plan online using the Online Payment Agreement tool.
Taking on extended payments with interest isn’t always the wisest decision, but the current economic environment has changed financial priorities for some taxpayers, says Michele Cagan, CPA, author and personal financial coach based in Baltimore. For a lot of families concerned with simply making ends meet, cash is the most important thing right now.
“A lot of people are struggling with money right now, and paying taxes is just going to add another burden on top of that,” Cagan says. “Even if you hate paying interest, if you are in a situation where you are concerned about cash, stretch out your payments to the IRS as long as you can and then when your financial situation normalizes, you can always pay ahead.”
Which Quarterly 2020 Estimated Taxes Are Due on July 15?
If you’re self-employed or an independent contractor and pay your estimated taxes quarterly, you’ll need to file your payments owed for the first two quarters of 2020 by July 15.
Typically first quarter taxes are due in April and second quarter taxes in June, but both of these deadlines were included in the July 15 extension. Third quarter payments will be due Sept. 15 and fourth quarter payments by Jan. 15, 2021.
Completing these estimated payments in addition to 2019 taxes all at once may be a big hit to many contracted and self-employed workers. If you can’t spare the cash for your estimated payments in full, Cagan recommends at least paying what you can toward your estimated quarterly taxes.
You may risk an underpayment penalty next year, but “any amount you can pay is going to be better than any amount that you don’t pay,” she says.
Bottom Line: File ASAP
The new deadline isn’t far off—but you don’t have to wait until July 15 to file.
If you’re expecting a refund, especially if you’re facing economic hardship due to the coronavirus pandemic and haven’t yet filed your 2019 taxes, file sooner rather than later and request your refund be dispersed via direct deposit for the quickest turnaround. You’ll still need to practice patience, though; processing delays have caused a backlog in refund disbursement, and even those who file earlier in the year may still be waiting.
But if you are receiving a refund, look out for a bonus this year: according to the IRS, filers receiving refunds will also receive interest payments accrued on their cash since April 15.
Even if you’ll owe taxes this year, the IRS recommends e-filing for a more efficient filing process. If you’d rather make your payment via check or file today and put off payment until July 15, you may also choose to file and pay separately. If you’re sending any part of your return by mail, it must be postmarked and deposited no later than July 15.
The most important thing is to take action before July 15 to avoid penalties and interest associated with your 2019 income taxes. File your tax returns or request an extension and pay in full or establish a payment plan before July 15 passes.