Plenty of taxpayers wait until the last possible minute before they start to prepare their taxes. With April 15 just over a month away, though, many of those tax procrastinators were starting to get antsy about whether they should get started in order to make the deadline.
Now, though, it looks like at least some taxpayers could get an extension. Because of the COVID-19 outbreak, President Trump announced that those affected adversely can expect to get some relief.
Here's what usually happens
Ordinarily, the IRS expects most taxpayers to file their tax returns by April 15. However, true procrastinators always have the option of taking a six-month extension, which gives them until mid-October to file. The IRS automatically grants these extensions, with the only requirement being that you need to request it by the mid-April deadline.
What you can't put off, though, is paying any taxes you owe. Even if you get an extension to file your return, you still have to pay your outstanding tax by the April 15 deadline. If you don't, then penalties and interest charges can be tacked onto your tax bill.
A new break from Washington
The proposed relief from the White House goes a step further than the automatic extensions for filing returns available to any taxpayer. The new proposal would give taxpayers affected by the coronavirus the ability to defer the tax payments they'd ordinarily have to make by April 15. The U.S. Treasury would forego charging any penalties or interest on the late payments.
Unfortunately, there aren't yet firm details about exactly who would be able to benefit from an extended deadline to pay taxes, or for how long they'd be able to defer payments. Treasury Secretary Steve Mnuchin pointed to the potential value of giving individuals and small and mid-sized businesses the ability to hold off on paying more than $200 billion in taxes that would otherwise be due. Yet at least the way the proposal sounds, those payments will eventually come due -- and not knowing when would create more uncertainty for businesses and individual taxpayers already struggling under the weight of financial impacts.
The government needs the money -- eventually
In describing the plan to elected officials in Congress, Mnuchin said he anticipated the federal government could issue short-term debt in order to finance operations during the delay in receiving tax payments from late filers. With interest rates on short-term Treasuries approaching zero, the cost of putting off tax revenue wouldn't be exceptionally high. However, the fact that the Treasury expects taxpayers to pay at some point only heightens the need for firmer terms so taxpayers know what to expect.
The other challenge is that the proposal only helps those taxpayers who would owe tax. The majority of individual taxpayers receive tax refunds each year, and those refunds are only available once taxpayers file their returns. That's historically been a key reason why even procrastinators file their returns by the April 15 deadline, because if they request an extension, it only lengthens the amount of time they have to wait to get a refund.
It's tempting to think you'll definitely have more time to file your return and pay your taxes as a result of the White House proposal. Given the underlying goal of helping people most hurt by the COVID-19 outbreak, it's dangerous to assume that every single taxpayer will get the benefit of waiting beyond April 15 to pay their taxes. Even with the threat of an economic recession ahead, you'll need to see the specifics of the federal government's plan before drawing any definitive conclusions.