Tax Policy – In Some States, 2020 Estimated Tax Payments Are Due Before 2019 Tax Returns
When it comes to tax deadline extensions that have occurred in response to the COVID-19 pandemic, deadlines for filing and paying 2019 income taxes have received much of the public attention. However, self-employed individuals, investors, and others who receive income from sources other than an employer must also pay attention to changes in quarterly estimated tax payment due dates that have occurred this year at both the federal and state levels.
Currently, there are some states in which first- and second-quarter estimated tax payments for tax year 2020 will come due before final tax year 2019 federal income tax forms and payments are due. There are also several states in which second-quarter estimated tax payments will come due before first-quarter payments. To prevent confusion and to ensure taxpayers receive the full benefit of the extended federal deadline, states, wherever possible, ought to consider extending their first- and second-quarter estimated tax payment due dates to July 15 or later.
Who Makes Quarterly Estimated Tax Payments?
Upon beginning work for a new employer, one of the first things salaried and hourly employees are asked to do is fill out Form W-4, which allows the employer to withhold income taxes from each paycheck throughout the year, both on wages earned from that employer and from other sources of income. When that employee files his or her annual income tax return, taxes that were overpaid throughout the year are returned to the taxpayer in the form of a refund, or, if an insufficient amount of money was withheld throughout the year, the remaining balance will come due on Tax Day.
Many people, however, receive income from sources other than an employer, such as self-employment income, interest and dividend income, unemployment compensation, Social Security benefits, rental income, and alimony, among others. In general, if a taxpayer is expected to owe at least $1,000 in federal income taxes but does not have a way to have those taxes withheld throughout the year by an employer (or a spouse’s employer, if filing jointly), then that individual is required to remit estimated income tax payments throughout the year. Most individuals who make quarterly estimated tax payments to the federal government must also make payments to their state, but each state sets its own requirements. As such, the responsibility falls on taxpayers to know when their state’s estimated tax payments are due, and to pay special attention to whether any applicable state due dates come before the extended federal due date.
Federal Estimated Tax Payment Due Date
Under normal circumstances, quarterly estimated tax payments for tax year 2020 would have come due April 15, June 15, and September 15 of this year, with the final payment due on January 15, 2021. However, due to the COVID-19 pandemic, the federal government and states have extended various tax deadlines to provide financial flexibility and reduce compliance burdens at a time when many businesses have faced extended closures and many individuals are out of work. While most states (with several exceptions) typically set their quarterly estimated tax payment due dates to match the federal government, some states have chosen to depart from the federal government when it comes to offering extensions for 2020 estimated tax payments.
When the Internal Revenue Service (IRS) initially extended the federal income tax deadline to July 15, the new due date applied only to taxes that were originally due April 15, leaving the second-quarter estimated tax payment due date unchanged at June 15. However, since this would have resulted in second-quarter payments coming due a month before first-quarter payments, the IRS subsequently extended both the first- and second-quarter estimated tax payment due dates to July 15.
State Estimated Tax Payment Due Dates
To date, 21 states have followed the IRS in extending the due date for first- and second-quarter estimated tax payments to July 15. However, in 14 states and the District of Columbia, both the first- and second-quarter estimated tax payment due dates come before the federal due date (and before tax year 2019 income taxes are finally due on July 15). And in these eight states, the first-quarter estimated tax payment due date has been extended to July 15, but the second-quarter due date remains June 15: Delaware, Indiana, Montana, Nebraska, New Jersey, New York, Oklahoma, and Rhode Island. Tennessee’s franchise and excise tax, which is paid by sole proprietors and pass-through business owners as well as C corporations, also has a second-quarter payment deadline of June 15th.
|First and Second Quarter Estimated Individual Income Tax Payment Due Dates by State (as of May 19, 2020)|
|Alabama||July 15||July 15|
|Arizona||April 15||June 15|
|Arkansas||April 15||June 15|
|California||July 15||July 15|
|Colorado||July 15||July 15|
|Connecticut||July 15||July 15|
|Delaware||July 15||June 15|
|Georgia||July 15||July 15|
|Hawaii||April 15||June 15|
|Idaho (a)||June 15||June 15|
|Illinois (b)||April 15||June 15|
|Indiana (c)||July 15||June 15|
|Iowa (d)||April 30||June 30|
|Kansas||April 15||June 15|
|Kentucky||July 15||July 15|
|Louisiana||April 15||June 15|
|Maine||July 15||July 15|
|Maryland||July 15||July 15|
|Massachusetts||July 15||July 15|
|Michigan||July 15||July 15|
|Minnesota||April 15||June 15|
|Mississippi||July 15||July 15|
|Missouri||July 15||July 15|
|Montana||July 15||July 15|
|Nebraska||July 15||June 15|
|New Hampshire||June 15||June 15|
|New Jersey||July 15||June 15|
|New Mexico (f)||July 15||July 15|
|New York||July 15||June 15|
|North Carolina (g)||April 15||June 15|
|North Dakota||July 15||July 15|
|Ohio||July 15||July 15|
|Oklahoma||July 15||June 15|
|Oregon||April 15||June 15|
|Pennsylvania||July 15||July 15|
|Rhode Island||July 15||June 15|
|South Carolina||July 15||July 15|
|Tennessee (h)||July 15||June 15|
|Vermont||July 15||July 15|
|Virginia||June 1||June 15|
|Washington (j)||June 30||July 31|
|West Virginia||July 15||July 15|
|Wisconsin||July 15||July 15|
|D.C.||April 15||June 15|
Note: Deadlines shown are for calendar year filers and may differ for fiscal year filers.
Table shows due dates for states’ individual income taxes, or, in states without an individual income tax, any general business tax that falls on pass-through businesses that would otherwise pay through the individual income tax code.
(a) Idaho requires certain businesses, but not individuals, to make estimated tax payments.
(b) Illinois has not extended its quarterly estimated tax due dates but is offering flexibility in calculating 2020 estimated tax payments for taxpayers who have not yet filed their 2019 tax return.
(c) Indiana’s first quarter estimated payment for both individual and corporate income taxes has been extended to July 15. The second quarter due date has been extended from May 15 to August 17 for corporate filers, but the second quarter individual due date remains June 15.
(d) Iowa is offering conditional penalty relief for certain underpayments of first and second quarter estimated tax payments.
(e) Estimated tax payments are not required for Nevada’s Commerce Tax or Texas’s Margin Tax, which can fall on pass-through business owners.
(f) In New Mexico, interest will accrue on second quarter payments, but not first quarter payments, made after their original due date.
(g) North Carolina is waiving interest on certain underpayments of first and second quartered estimated taxes.
(h) Tennessee does not require quarterly estimated payments for its Hall income tax on investment income. Estimated tax payment due dates shown are for Tennessee’s franchise and excise tax, which is owed by passthrough business owners who would otherwise owe individual income tax.
(i) Utah’s income tax does not have a quarterly estimated tax payment requirement.
(j) For taxpayers paying Washington’s Business and Occupation (B&O) tax on a quarterly basis (including passthrough business owners subject to individual income taxes in other states), the first and second quarter estimated tax payment deadlines have been extended to June 30 and July 31, respectively.
Sources: Curtis Ruppal, Mike Merkel, Ron Cook, Jeanette Tolar, and Julie Corrigan, “COVID-19: State and Local Tax Updates,” Plante Moran, May 12, 2020, https://www.plantemoran.com/explore-our-thinking/insight/2020/03/covid19-march-27-state-and-local-tax-updates; state executive orders and revenue department websites.
Setting State Estimated Payment Due Dates Before the Federal Due Date Adds Complexity and May Lead to Underpayment Penalties
Some states chose to keep their first- and second-quarter estimated tax payment due dates in April and June in order to avoid shifting revenue from one fiscal year to the next, which could make it difficult for some states to close out fiscal year (FY) 2020 with a balanced budget. While April 15 has already passed, states in this situation may want to consider offering certain relief from penalties for underpayment of estimated taxes, especially those states that extended their tax year 2019 income tax filing deadline but did not extend their first- and second-quarter 2020 estimated tax payment deadlines. In most cases, taxpayers who make estimated tax payments rely on information from federal Form 1040, which is due July 15, in order to accurately estimate their quarterly tax payments for 2020. As a result, taxpayers who are taking advantage of extended federal and state 2019 income tax filing deadlines may have difficulty properly estimating their quarterly payments for 2020.
For the states that have extended their first-quarter due date, but not their second-quarter due date, to match the July 15 federal deadline, there is good reason to consider extending the second-quarter due date. Different states have different requirements for the percentage of total estimated tax that must be paid by each due date, so submitting second-quarter payments before first-quarter payments could create unnecessary confusion with respect to the amount that must be paid. Furthermore, for states with quarterly payments that come due before the federal deadline, those taxpayers will not receive the full benefit of the extended federal deadline, as many will feel the need to submit their 2019 tax returns early in order to properly calculate their state estimated tax payments.
Notably, some states have offered certain allowances in order to keep their quarterly due dates on schedule while giving taxpayers the full benefit of the July 15 income tax filing deadline. For example, Illinois is allowing taxpayers to calculate their estimated tax payments based on their actual 2018 tax liability if they do not yet know their 2019 actual tax liability.
The COVID-19 pandemic, and the unprecedented economic conditions surrounding it, have created immense challenges for individuals and businesses to overcome. The federal government, and most states, have sought to extend needed flexibility to taxpayers in one form or another, but in some states, more remains to be done. States that have not yet extended flexibility in terms of estimated tax payment due dates, calculations, or penalties still have the opportunity to do so, and states that have second-quarter deadlines that come before first-quarter deadlines still have time to match the July 15 federal deadline.
Source: Tax Policy – In Some States, 2020 Estimated Tax Payments Are Due Before 2019 Tax Returns