In Notice 2020-18 (PDF), the US Treasury Department and the Internal Revenue Service (IRS) announced special Federal income tax return filing and payment relief in response to the ongoing Coronavirus Disease 2019 (COVID-19) emergency. The IRS has now published Frequently Asked Questions providing additional information on the relief, some of which is relevant to employer-sponsored retirement plans, Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs).
By way of background, to the relief of millions, Notice 2020-18 (which broadens earlier Notice 2020-17), provides that for all “Affected Taxpayers” the due date for filing Federal income tax returns and making Federal income tax payments that would otherwise be due on April 15, 2020 is automatically postponed to July 15, 2020. There is no limitation on the amount of the payment that may be postponed and no need to file a request for a delayed deadline. The term “Affected Taxpayer” is broadly defined to include any person with a Federal income tax payment or a Federal income tax return due on April 15, 2020, and “person” includes individuals as well as corporations and other entities. The taxpayer need not be sick or demonstrate that he/she is affected in any way by the virus. The relief is available solely with respect to Federal income tax payments (including payments of self-employment income) and Federal income tax returns due for a 2019 taxable year, and Federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020, for a 2020 taxable year.
The new Frequently Asked Questions provide guidance on the implications of this relief in a number of areas, including for certain deadlines applicable to retirement plans, IRAs and HSAs, as follows:
- IRA Contribution Deadline. The deadline for making a contribution to an IRA for a particular year is the taxpayer’s due date for filing his/her tax return for that year. Q17 provides that because the due date for filing Federal income tax returns for 2019 has been postponed to July 15, 2020, the deadline for making a contribution to an IRA for 2019 is also extended to July 15, 2020.
- Qualified Plan Deductible Contribution Deadline. The Frequently Asked Questions clarify that the relief also liberalizes the deadline for making deductible contributions to a qualified plan for calendar year 2019. Under Internal Revenue Code section 404(a)(6), a contribution to a plan for an employer’s taxable year will be deemed made by the last day of such taxable year (and will thus be deductible for that year) if made on account of such year and by the due date, including extensions, for filing the employer’s tax return for that year. The new Frequently Asked Questions provide that in the case of employers who are Affected Taxpayers (i.e., those who qualify for the extended July 15, 2020 deadline), “the end of the section 404(a)(6) grace period for these employers is also July 15, 2020.” The guidance provides by way of example that if an employer is a corporation that would, in the absence of Notice 2020-18, have an April 15, 2020 due date for filing its income tax return, the grace period under section 404(a)(6) for the employer to make contributions to a qualified retirement plan for calendar year 2019 “ends on July 15, 2020.” As noted above, section 404(a)(6) provides that the grace period runs to the due date “including extensions” for filing the employer’s tax return. Although the Notice does not address the issue, presumably, in the case of an employer who is eligible for 2020-18 relief and who obtains an extension for filing its tax return to a date after July 15, 2020, the actual end of the 404(a)(6) grace period will be such extended due date.
We note in this regard that both individuals and corporate taxpayers who timely request an extension for filing their tax returns may obtain a six-month extension, meaning that in the case of a C-corporation taxpayer that has an April 15 due date for its tax return, its extended due date (if properly requested) will be October 15. Q12 indicates that if an individual requests an extension to file his/her tax return, the extension will end October 15, suggesting that the six-month extension runs from April 15 rather than July 15. It appears that this same rule also applies to businesses, meaning that if a C-corporation taxpayer that has an April 15 due date for its tax return requests a six-month extension, that extension will run from April 15 (rather than July 15) and will end on October 15. In that event, the section 404(a)(6) grace period will presumably also end on October 15.
- Section 72(t) Additional Income Tax. Section 72(t) imposes a 10% additional income tax on certain “premature” distributions from a retirement plan. The Frequently Asked Questions provide that because the tax is calculated, reported, and paid at the same time as the income tax owed on the amounts includible in gross income on the distribution, the deadline for reporting and paying the 10% additional tax is also extended to July 15, 2020 as a result of Notice 2020-18.
- Distribution Deadline for Excess Deferrals. Section 402(g) provides that if for any taxable year an individual makes excess pre-tax deferrals under a qualified retirement plan, excess amounts that are distributed by April 15 of the following year will not be taxable to the individual. The Frequently Asked Questions clarify that the April 15 deadline is not extended by Notice 2020-18 for this purpose.
- Deadline for Making HSA Contributions. The deadline for making a contribution to an HSA ] for a particular year is the taxpayer’s due date for filing his/her tax return for that year. Q21 provides that because the due date for filing Federal income tax returns for 2019 has been postponed to July 15, 2020, the deadline for making a contribution to an HSA for 2019 is also extended to July 15, 2020.
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