Extension of income tax deadlines results in extension of deadlines for some benefits-related matters, IRS says

The Internal Revenue Service recently issued Notice 2020-18, which delays the federal income tax filing and payment deadlines for individuals, corporations, and others from April 15 to July 15. In a Q&A related to the Notice, the IRS has clarified the implication of this extension for certain benefits-related matters.

The IRS has clarified that this extension means that the end of the grace period under Section 404(a)(6) of the Internal Revenue Code for those employers to make contributions to their qualified retirement plans on account of the 2019 plan year is also extended to July 15, 2020. The IRS provides as an example an employer who is a corporation with an April 15, 2020, due date for filing the Form 1120. In that circumstance, 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.

The federal tax deadline extensions are also providing employees with more time to contribute money to their Health Savings Accounts for 2019. Generally, contributions to an HSA for a particular year may be made at any time during that year or by the employee’s due date for filing a tax return for that year. But the IRS has clarified that because the due date for filing federal income tax returns is now July 15, 2020, employees may make contributions to their HSA for 2019 at any time up to July 15, 2020.

There is also some tax relief for employees related to distributions taken under their retirement plans. Employees who took distributions in 2019 for which they owe the 10 percent additional tax penalty (that is, they took a distribution and they were under the age of 59 ½, and no exception applies), would ordinarily have had to pay that additional tax penalty by April 15, 2020. However, because the IRS has extended the filing and payment date for federal income taxes, the 10 percent additional tax penalty payment is also extended. The reason for the extension is based on the fact that the 10 percent penalty is calculated, reported, and paid at the same time as the income tax otherwise owed on the distribution. Thus, the reporting and payment of the penalty has also been extended to July 15, 2020.

Employees who made excess deferrals to a retirement plan, however, must still 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. That date has not been extended by the IRS relief.

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