On March 19 we launched a tracker providing a repository of information related to state fiscal policy responses to COVID-19. We are updating the tracker frequently and will be using the Tax Foundation blog to summarize new developments and provide analysis of relevant trends as they emerge. This blog post is part of that series. Past Updates: March 24, March 25, March 26, and March 27.
Income TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Filing and Payment Deadline Changes
As of April 1, every state with an individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. has offered taxpayers some form of income tax extension. Most states, with a few exceptions, traditionally follow the federal government in holding Tax Day on April 15. As a result, when the Internal Revenue Service (IRS) moved this year’s Tax Day to July 15, most states chose to follow suit, postponing their own filing and payment deadlines by three months.
However, there are some notable holdouts. While no state is requiring taxpayers to file or pay their individual income taxes by April 15, Virginia (a state whose typical Tax Day is May 1), has kept May 1 as the filing deadline while extending the payment deadline to June 1. Meanwhile, Idaho has extended its filing and payment deadline to June 15 (a two-month extension), while Mississippi has extended its filing and payment deadline to May 15 (a one-month extension).
Two states have extended their own filing and payment deadlines beyond the July 15 federal deadline. Hawaii is giving taxpayers until July 20 to file and pay. (Hawaii’s Tax Day is typically April 22.) Iowa, a state whose Tax Day is typically April 30, is giving taxpayers until July 31 to file and pay.
With so many employees across the country working remotely due to state stay-at-home orders, there is potential for teleworking employees to expose their employers to tax liability in states for which those businesses otherwise would not have nexus. Similarly, employees working remotely in another state can trigger withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. tax requirements in the state in which they are now working. Two states, New Jersey and Mississippi, have instituted temporary adjustments in response to these unusual circumstances. In New Jersey, the state is temporarily adjusting nexus thresholds to avoid having nexus attach simply due to residents working from home due to the coronavirus situation. In Mississippi, the Department of Revenue has announced that income tax withholding requirements will be based on employees’ normal work location, not their temporary telework location. At a time in which most employees are not allowed to go to the office, it would be prudent for other states to consider making similar adjustments.
Other Tax Filing and Payment Deadline Changes
Several additional states have announced tax filing and payment deadline extensions for taxes besides income taxes. In California, Gov. Gavin Newsom (D) has extended the filing and payment deadline to July 31 for a broad spectrum of business taxes. Specifically, businesses are eligible for the extension if they owe less than $1 million. Florida, one of the states without an individual income tax, has extended the filing and payment deadlines for various sales, tourism, and excise taxes. Kansas is among the states giving taxpayers additional time to apply for a homestead refund and other forms of property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. relief.
State Revenue and Spending Developments
As most states are entering the last quarter of their 2020 fiscal year, many face steep and unexpected revenue shortfalls. Not only is this complicating states’ efforts to close out FY 2020 with a balanced budget, as is required by law in most states, but it is also complicating states’ efforts to finalize their budgets for FY 2021. New Mexico’s FY 2021 budget has already been enacted, but significant adjustments are being considered for a special session. South Dakota Gov. Kristi Noem (R) has said she plans to sign the budget bills that already passed both chambers but will avoid spending new revenue until the legislature can reconvene in a June special session to make revisions. In Idaho, Gov. Brad Little (R) signed an executive order requiring all agencies not directly responding to COVID-19 to cut their budgets by 1 percent for the remainder of the current fiscal year.
State Legislative Session Changes
Multiple states have further postponed their next legislative meeting day, including Alabama, Colorado, Illinois, Louisiana, Michigan, Oklahoma, Rhode Island, and Vermont. In Pennsylvania, the House and Senate voted remotely for the first time. The Colorado Supreme Court has ruled the legislature may extend its 120-day legislative session beyond the scheduled May 6 adjournment date in order to make up legislative days it missed due to COVID-19.
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