Under current law, individuals must file their federal and state taxes (or an automatic extension form) by April 15, 2020 or face late-payment penalties. As one way to relieve financial pressure on families during the current coronavirus pandemic, President Trump instructed the IRS last week to delay tax payments without penalty or interest, and today announced the deadline would be pushed back 90 days.
JPMorgan Chase Institute Take:
As the April 15 tax payment deadline has been extended, it is worth presenting the facts of how such a response might be beneficial and to whom, in order to best consider what responses or solutions may still be needed.
For families who owe tax payments, JPMC Institute research has shown that they pay out an average of 2.5 weeks’ worth of income. However, the vast majority of families do not make a tax payment. Rather, four out of five tax filers receive a refund.
Moreover, families who make a tax payment tend to have both considerably higher incomes and higher cash balances than those who receive a refund. Our data suggest that tax payment families do not appear to struggle to make this payment. On average, families who make a tax payment cover it with cash they have available when it is due.
While a payment deadline extension does not explicitly target low-income families (who in many cases have already filed their taxes), a filing deadline extension would benefit families across the income spectrum who find it more difficult to meet the traditional filing date of April 15 because of upended schedules, school closures, and decreased mobility. In-person tax filing assistance may become even more limited. Allowing for tax payment delays provides immediate liquidity in the market as individuals have more disposable income in the short-term.
A deadline extension likely provides a benefit to small businesses who often operate with limited cash buffers. Through this channel, firms would have more flexibility to weather cash flow challenges as this expense could be delayed. In fact, forty-four percent of families who make tax payments are making multiple payments throughout the year, rather than a single payment during tax time, which could reflect property or business tax payments.
- Diana Farrell, President and CEO