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.
What’s Due on July 15
The following payments are due by July 15, 2020:
- 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.
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.
- 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.
You have two ways to make your tax payments electronically:
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:
- 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.
Example. In 2019, Paula had Schedule C net income of $100,000. In 2020, Paula projects having Schedule C net income of $80,000. She has no other income or deductions.
If Paula simply pays 100 percent of her 2019 total tax, she has to make a $12,098 estimated tax payment on July 15, 2020.
If Paula estimates her 2020 income and tax benefits, then she only needs to send in $6,118 as an estimated tax payment, saving her $5,980 in overpaid estimated taxes.
If you would like my help on planning your tax payments, please call me on my direct line at 909-570-1103