Thank you, Internal Revenue Service. The tax agency has confirmed that 2019 tax year contributions to individual retirement arrangements (IRAs) and health savings accounts (HSAs) can be made as late July 15.
These accounts are among the very few areas where a tax break doesn't have a Dec. 31 deadline. In normal tax seasons, contributions to an IRA or HSA can be made and claimed for the prior tax year as late as April 15, which is the usual tax filing deadline.
However, this year, as everyone already knows, the chaotic convergence of COVID-19 and taxes prompted the IRS to move Tax Day 2020 to July 15 to ease some tax season pressure.
That later filing date change was welcome, but the announcement in Notice 2020-18 was a bit too vague for many. As tax folks are wont to do, we clamored for more specificity on the many tax matters — including IRAs and HSAs — related to the new July deadline.
IRS Q&A: The IRS heard us and some certainty some of that certainty now is provided in the IRS' new Filing and Payment Deadlines Questions and Answers online page, which it says will be updated periodically. It answers or confirms many of the matters addressed in the ol' blog's own July 15 tax filing and payment deadline Q&A.
I've updated my earlier Q&A post with this good IRA and HSA deadline news. But since I've received many queries about these tax-favored accounts and since the IRS elaborates on more than just prior tax year IRA and HSA contributions, the IRS' clarifications on retirement and medical tax issues affected by coronavirus changes get this, their own post.
And while the July 15 change for tax year 2019 IRA and HSA contributions is good, some of the As to the Qs aren't as welcome. But at least now we know.
Here goes.
Does the new July 15 tax return filing and payment deadline extend the deadline for prior tax year contributions to an IRA?
Yes. Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to Julyv15, 2020. You can find more on IRA contributions in IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).
If I owe the 10 percent additional tax penalty for taking a distribution from my IRA or workplace-based retirement plan in 2019, is the due date for paying that additional tax also extended to July 15?
Yes, because the 10 percent additional tax is calculated, reported and paid at the same time as the income tax owed on the amounts includible in gross income on the early distribution, the reporting and payment of the added tax also has been extended to July 15.
I made excess elective deferrals to my workplace-based retirement plan in 2019. Do I have to take those excess deferrals (and income) out of the retirement plan no later than April 15, 2020, in order to exclude the distributions from income?
Yes, because that date is not also extended as a result of this relief.
The new July 15 deadline's effects on retirement plans also extends to employers who provide them to their workers. The following IRS question and answer is for those businesses.
For employers facing an April 15, 2020, federal income tax return due, is the end of the grace period under section 404(a)(6) to make contributions to their qualified retirement plans on account of 2019 now also July 15?
Yes, because these employers are Affected Taxpayers under Notice 2020-18 for whom the due date for filing Federal income tax returns and making Federal income tax payments that would be due April 15, 2020, is now July 15, 2020, the end of the grace period for these employers is also July 15, 2020 under this relief.
So, for example, if an employer is a corporation with an April 15, 2020, due date for filing Form 1120, then the grace period under section 404(a)(6) for the employer to make contributions to its workplace-based retirement plan that are treated as made on account of 2019 ends on July 15, 2020.
Now a look at what the July 15 due date means to some tax-favored medical accounts.
Does this relief provide me more time to contribute money to my HSA or Archer MSA for 2019?
Yes. Contributions may be made to your HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020. For more details on HSA or Archer MSA contributions, see IRS Publication 969, Health Savings Accounts and other Tax-Favored Health Plans.
By now, the tax-savvy readers of the ol' blog know that an HSA is a medical spending account that is available in connection with a high-deductible health plan (HDHP). As the name indicates, these medical insurance policies require more out-of-pocket payments from you. You cover those added HDHP costs with the money you put into your HSA.
However, you might not be as familiar with the Archer MSA. This is a specific medical savings account, also associated with a HDHP, but which was created before HSAs. Now it usually is only available to self-employed individuals or people who are employed by a company with 50 or fewer employees.
So if you have an IRA or HSA or Archer MSA and want to add to those accounts for the 2019 tax year, you have a few more months to come up with that money.
Kudos to the IRS: Finally, let me repeat my opening and sincere thanks to the IRS for these clarifications.
The tax agency catches a lot of flak. Some of it is deserved.
But in many cases, the IRS is in the same boat as we taxpayers and the tax pros we consult. We're all at the mercy of often whipsawing Congressional and other political actions that affect our taxes and that are more wide ranging than anyone could foresee in full.
And that's about to happen again, with some tax provisions in the massive coronavirus stimulus bill nearing final consideration by the full Senate and House. Details are still scarce as to all the tax components in the bill, but expect the IRS to be on the spot again soon to clear up these new tax matters.
You also might find these items of interest:
- Businesses get tax relief in phase 1 coronavirus bill
- Stop smoking to reduce health risks & possibly your taxes
- When early retirement plan withdrawals are penalty free
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