Tax experts are sounding alarm bells over the possible extension of the federal tax filing deadline, warning that further delays could cause serious harm to state and local governments.
The warnings come as Treasury Secretary Steven Mnuchin said during a June 23 webinar hosted by Bloomberg that he is thinking about whether to delay the July 15 federal filing deadline further.
This year’s April 15 deadline for filing tax returns and paying federal income taxes was delayed by three months in response to the COVID-19 pandemic. States followed suit and pushed back their deadlines as well, which in turn pushed revenues from the current fiscal year, where they had been budgeted, into the next fiscal year.
In a June 18 letter, the National Taxpayers Union Foundation, Americans for Tax Reform, the American Legislative Exchange Council, and 19 other groups urged Mnuchin to defer estimated tax payments, excise tax payments, and due dates for other taxes into 2021.
"Doing so would not reduce a penny of tax owed, but would give the economy some much-needed breathing room to recover cash flow, transition to hiring unemployed workers, and rebuild shattered small businesses. The case is clear that delaying payment deadlines — including estimated taxes and excise taxes — must be an immediate priority,” according to the letter.
But in a June 25 blog post, tax experts at MultiState Associates said that although "the federal government was right to delay the 2020 tax filing season," another extension would "cause material harm."
The blog post, written by Morgan Scarboro, economist and tax policy manager, and Joseph Crosby, chairman and CEO, noted that with budgeting season approaching, states can’t afford another tax filing or payment extension. “At a time when the economy is just beginning to recover, it would be fiscally irresponsible to delay the filing deadline yet again,” according to the post. “Further delays would force states to significantly increase other taxes, dramatically cut jobs, and make deep reductions to critical programs.”
Scarboro and Crosby explained that another filing extension would also “create massive compliance problems for taxpayers and administrative problems for states” because taxpayers would likely have to navigate separate filing periods at the state and federal level.
They also noted that a further delay would "predominantly benefit upper income taxpayers, as wage withholding taxes have continued without interruption."
Verenda Smith, deputy director at the Federation of Tax Administrators, told Tax Notes June 25 that another federal extension “is one of those things that sounds better than it would play out in the real world.” The FTA warned in March about the revenue implications of the first extension.
Smith said extending the federal deadline a second time would require tax administrators to respond to the deadline extension at a time when they are preparing their computer systems for the next filing season.
States may then also be forced to extend their deadlines for administrative or political reasons, Smith continued, adding that taxpayers could then have to comply with varying filing and payment deadlines, which would cause major headaches for accountants and tax administrators.
"This is actually serious — this is a big deal," Smith said. "Government needs to function; this does not help government function when it's already under a terrible strain."