April 14, 2021
LAW FIRM CLIENTS | IRS clarifies application of individuals' 2020 overpayments to 2021 estimated taxes
On April 12, 2021, the IRS announced details on how individual taxpayers' 2020 overpayments can be applied to their 2021 estimated tax.
Although individuals may credit 2020 overpayments against their 2021 estimated tax, the timeliness of those payments for estimated tax purposes would depend on when the overpayment arose. The announcement states that overpayments for 2020 that exist as of April 15, 2021 (because payments made on or before April 15, 2021, exceed the 2020 tax liability) will be applied as of April 15, 2021, whether the 2020 return is filed on April 15, May 17, or October 15, 2021. Overpayments for 2020 that are attributable to a payment made after April 15, 2021 (including any payment made by May 17, 2021) will be credited as of the date the payment is received, thus making them untimely for first quarter estimated tax purposes.
Taxpayers and tax professionals alike had been asking the IRS to clarify this point since the extension to May 17, 2021 was announced on March 17, 2021. The recent IRS announcement could cause some confusion among taxpayers just days before the April 15, 2021 first-quarter estimated tax payment deadline, as it seems at odds with an early-April press report on a statement made by an IRS spokesperson.
EY Tax Alert 2021-0759 provides details.