As the COVID-19 virus continues to wreak havoc throughout our country and the world, I first want to remind everyone the importance of being safe and taking care of yourself and your neighbors. We are all in this together.
Last week the President signed legislation which includes financial assistance in the form of direct checks by the Federal Government to most Americans. In addition, there is also some welcome relief for taxpayers.
Because of the Coronavirus, the Federal Government and the State of Michigan have extended their deadlines for individuals filing their 2019 tax returns. As most of us know, tax returns are due April 15 each year; however, for this year, the deadline has been postponed to July 15, 2020. In addition, for those of you who owe money either to the Federal government or to the State of Michigan that you were planning to pay on April 15, the due date for those payments has also been extended to July 15, 2020. Furthermore, if you traditionally make estimated payments, your first estimated payment for 2020 is usually due on April 15. Once again, that deadline has been extended to July 15. However, like most things in our laws, there is a little quirk. Second quarter estimated payments are due June 15, 2020. As of now, that date has not been extended. Therefore, the new rules are that your second quarter estimated payments are actually due before your first quarter payment.
The changes I have mentioned are automatic. There is nothing that you need to do to get this extension of time. It’s not like what has traditionally been done, that if you needed additional time to file your tax return, you had to file Form 4868 to receive an automatic six-month extension. That is not the case for the extension to July 15. There is nothing that you need to do either for the state or for the Federal Government.
The Federal Government has also waived the 10 percent early withdrawal penalty from retirement plans and IRAs for certain individuals who are under the age of 59½. If you are an individual who has been diagnosed with the COVID-19 virus, whose spouse or dependent has been diagnosed with the virus, an individual who has experienced adverse financial consequences as result of being quarantined, laid-off, having work hours reduced due to the virus, or unable to work due to lack of childcare, you can take up to $100,000 from your retirement account without penalty. Of course, you still must pay the taxes on the withdrawal; however, the 10 percent early withdrawal penalty is waived for this year only.
The Federal Government has also waived the requirements for required minimum distributions this year. This is a change that could impact many seniors. The rule also applies for those of you with inherited IRAs. The bottom line, if you do not want to take a required minimum distribution this year you do not have to. For those who have already made a minimum required distribution this year and who only took the distribution because the law required it, if you have taken it within the last 60 days you can still roll that money back into your IRA without tax consequences.
When it comes to taxes, it is not one size fits all. Particularly, whether you take a minimum required distribution or not is all dependent upon your individual situation. What is good for your next-door neighbor may not be good for you. Therefore, always focus on your individual situation.
One last note regarding the tax changes for 2020 and that is if you have not yet made an IRA contribution for 2020, that deadline has also been extended to July 15, 2020.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at email@example.com.