Last week, because of its dreadful failure to keep up with tax filing season and pressure fromadvocacy organizations and members of Congress, the Internal Revenue Service (IRS) acted to move the deadline for filing and payment of federal income taxes from April 15 to May 17. Since then, the majority of states have conformed to this updated deadline. But several states have yet to follow suit, creating potential uncertainty for taxpayers over filing and paying their taxes effectively.
The rationale behind moving the Tax Day deadline this year appears to be less of a home runthan it was last year. Much of the need to move the deadline comes from the IRS failing to adequately prepare for this year’s tax season despite having an entire calendar year to make preparations, leaving taxpayer services shortchanged. Moving the Tax Day deadline is as much relief for the IRS as it is for taxpayers this year.
Nevertheless, with the change made at the federal level, there is every reason for states to follow suit. Failing to conform to the federal deadline leads to confusion and the potential for unprepared taxpayers to incur penalties and interest for not filing their state taxes in time.
For example, a cursory search for tax deadline information online will return results about the federal date having been moved to May 17, but taxpayers may not know whether their state has conformed with this change as well. That could leave taxpayers and state governments alike in a bad situation.
Getting each state to conform to the federal filing and payment deadlines is also important should Congress finally choose to act on remote work tax relief. Congress may believe it has until May 17 to fix the issue of remote workers being taxed by the states they formerly worked in, but taxpayers in states that have not conformed to the federal deadline would likely be out of luck for any federal fix made after their states’ tax deadlines.
As of this writing, just five states have kept their income tax filing and payment deadlines at the usual dates: Arizona, Hawaii, Idaho, Iowa, and Ohio. New Hampshire has no income tax, but its interest and dividends tax remains due on April 15.
Of course, it’s not inconsequential for states to extend their tax deadlines. Tax software has to be recoded to reflect the new date, and state balanced budget requirements often make maintaining a regular flow of revenue more important than it is at the federal level.
Fortunately for states, Congress just authorized a massive $200 billion state aid package (one which far exceeded what state budget situations called for). That should more than cover any revenue difficulties created by delaying some tax revenue by a month.
There’s also reason for optimism that the remaining states will act. Iowa’s Department of Revenue has stated that the deadline will likely be moved back to late May or early June, Arizona and Idaho are considering legislative proposals to push the deadline back, while Ohio and Hawaii have not definitively stated that they will not push back the deadline. If these states are to act, the sooner the better.
The last states throwing taxpayers a curveball are Alabama, Pennsylvania, and Virginia, which have extended their filing deadlines but not their payment deadlines. These states will waive penalties on tax payments made by May 17, but taxpayers will still be responsible for interest on tax payments made after April 15. That’s an unnecessary hardship on taxpayers most in need of the extra time to file.
Hopefully this latest federal deadline shift will be the last one the IRS needs this year. Taxpayers, practitioners, and the rest of the private sector have adapted to pandemic-related filing realities; the government agencies serving them need to get better at doing so. Regardless of the motivations behind the federal delay, the remaining states should act quickly to conform to the federal deadline to protect taxpayers from penalties and confusion. The last thing taxpayers need while muddling through a yearlong pandemic is to be hit with a state tax penalty because they thought they had more time to file.