As we all try to limit our exposure to the coronavirus as much as possible, delayed tax filing and payment deadlines are one less thing to worry about for now—at least in most states. It was state governments that took the lead, extending deadlines even before the federal government acted, but once the IRS extended the federal 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 to July 15th, just about every state followed suit. As of today, 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 made some adjustment to its filing or payment deadlines, but three—Idaho, Mississippi, and Virginia—have not followed the federal government’s date of July 15th or later. And Virginia in particular is offering taxpayers relatively little relief.
In Virginia, the tax payment deadline has been postponed to June 1, but the tax filing deadline is still May 1 (Virginia’s normal deadline), which is important because interest starts accruing the next day. Only late payment penalties are waived through June 1, not interest. The Commonwealth is urging everyone to file by May 1 as usual to avoid interest.
Individual income tax filing and payment deadlines are July 15 or later in all other states.
Like most states, Idaho and Virginia use federal adjusted gross income (AGI)Adjusted gross income (AGI) is a taxpayer’s total income minus certain “above-the-line” deductions. It is a broad measure that includes income from wages, salaries, interest, dividends, retirement income, Social Security benefits, capital gains, business, and other sources, and subtracts specific deductions. as the starting point for their own income tax calculations, meaning that taxpayers must fill out their federal income tax forms before beginning their state taxes. While taxpayers in these states might choose to delay filing and paying their federal taxes until closer to July 15th, the need to file state tax returns earlier would require getting started on the federal income tax forms as well.
Mississippi is unusual in that it uses its own income starting point, determined by filling out Mississippi-specific worksheets, though even here there are time savings in filling out both federal and state forms in short succession, since they rely on similar calculations.
In other words, taxpayers in Idaho and Virginia, and to a lesser extent Mississippi, lose much of the benefit of the federal income tax extension because their own states require them to file their taxes sooner. And Virginia, temporary waiver of the late payment penalty notwithstanding, is doing taxpayers very few favors. If anything, Virginia taxpayers could be worse off: learning that Virginia has delayed payment requirements to June 1, many might delay filing and payment until sometime in May, getting hit by unexpected interest charges for blowing past the May 1 filing deadline.
State resistance to delaying filing and payment deadlines is somewhat understandable. Although income tax revenue is collected throughout the year through 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. and quarterly estimated payments, April is a significant revenue month for states, and pushing some of those collections into the next fiscal year (beginning July 1) can create revenue timing issues as states seek to close out FY 2020 with a balanced budget.
However, states have recognized the burdens that current filing deadlines place on taxpayers—both financially and to the extent that they require taxpayers to leave their homes to track down documents or visit tax preparers. And of the states that impose individual income taxes, all but Idaho, Mississippi, and Virginia are finding a way to make delayed filing and payment work.
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