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IRS Q&As Address Applicability of Tax Filing Extension Under Notice 2020-18 to Retirement Plans and HSAs
Practical Law Legal Update w-024-6493 (Approx. 4 pages)
IRS Q&As Address Applicability of Tax Filing Extension Under Notice 2020-18 to Retirement Plans and HSAs
by Practical Law Employee Benefits & Executive Compensation
| Published on 26 Mar 2020 • USA (National/Federal) |
The IRS has issued Q&As on Notice 2020-18, which postponed the due date for certain federal income tax payments in response to the COVID-19 outbreak. Among other topics, the Q&As address how the postponement affects retirement plans and health savings accounts (HSAs).
On March 24, 2020, the IRS issued Q&As on Notice 2020-18, which postponed the due date for certain federal income tax payments from April 15, 2020, until July 15, 2020, in response to the COVID-19 outbreak in the US.
For a continuously updated collection of resources addressing COVID-19, see Practical Law's Global Coronavirus Toolkit.
Notice 2020-18
Under Notice 2020-18, federal income tax returns and federal income tax payments that normally would have been due on April 15, 2020 (including income tax payments and returns for the 2019 taxable year and estimated income tax payments for the 2020 taxable year) are automatically postponed to July 15, 2020, for Affected Taxpayers. (This relief was originally provided in Notice 2020-17, which was superseded and expanded by Notice 2020-18.) Notice 2020-18 defines an Affected Taxpayer as any person with a federal income tax payment or a federal income tax return due April 15, 2020.
Furthermore, Notice 2020-18 provides that:
- The period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file federal income tax returns or to pay federal income taxes postponed by this notice.
- Interest, penalties, and additions to tax with respect to the federal income tax filings and payments postponed under Notice 2020-18 will begin to accrue on July 16, 2020.
IRS Q&As on Notice 2020-18
Several IRS Q&As address the applicability of Notice 2020-18 to retirement plans and health and welfare plans.
Retirement Plans
The Q&As explain that:
- The due date for paying the 10% additional tax on amounts includible in gross income from distributions from a pension plan or IRA in 2019 is extended to July 15, 2020. The 10% 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 distribution. To learn more about the 10% tax on certain early distributions, see Practice Note, Qualified Retirement Plan Loans: Cure Period: Tax Treatment of Deemed Distribution.
- If a pension plan participant made excess elective deferrals to the plan in 2019, those excess deferrals (and income) must be taken out of the retirement plan no later than April 15, 2020, in order to exclude the distributions from income. The April 15 deadline is not extended under Notice 2020-18. To learn more about excess deferrals, see Practice Note, Contributions to a Defined Contribution Plan: Overview: Excess Deferrals.
- The grace period for employers to make contributions to their qualified retirement plans on account of 2019 under Internal Revenue Code Section 404(a)(6) (26 U.S.C. § 404(a)(6)) ends on July 15, 2020, if those employers normally would have to file income tax returns and make federal income tax payments by April 15, 2020. To learn more about timing requirements under Code Section 404(a)(6), see Practice Note, Contributions to a Defined Contribution Plan: Overview: Timing of Contributions.
- The Q&As also provide that the deadline for making contributions to individual retirement accounts (IRAs) for 2019 is extended to July 15, 2020.
Extended Deadline for HSA Contributions
The Q&As also allow individuals to make contributions to health savings accounts (HSAs) or Archer medical savings accounts (Archer MSAs) for 2019 until July 15, 2020 (see Practice Note, Defined Contribution Health Plans: Overview). For additional IRS guidance involving HSAs and the COVID-19 outbreak, see Legal Update, IRS Addresses Coverage for COVID-19 Testing and Treatment in HSA/HDHP Guidance.
Practical Implications
As the nation continues to respond to the COVID-19 pandemic, qualified retirement plan sponsors and administrators should be aware of how Notice 2020-18's extension of the federal tax filing and payment deadline to July 15, 2020, affects retirement plan requirements.