COVID-19

Impacted Tax Periods and New Due Dates

Who is eligible for the deferral and waiver of penalty and interest?

All sales tax or withholding tax permit holders can apply by filling out the Small Business Relief Tax Deferral application (the application period has ended). Factors considered during application review include: industry type; current standing with the Department; and, economic loss related to COVID-19.

What exactly does “tax deferral” mean?

For tax payments deferred in the first round of the program, a taxpayer will be given 60 days to pay their balance due for the applicable taxes. Penalties would be suspended and interest would be waived for the first 60 days after the original due date. Interest would begin to accrue 61 days after the original due date on the original tax due.

For periods deferred in the second round of the program, a taxpayer will be given 30 days to pay their balance due for the applicable taxes. Penalties and interest would be suspended for the first 30 days after the original due date. Penalties would apply and interest would begin to accrue 31 days after the original due date on the original tax due.

What taxes are included in the deferral and waiver of penalty and interest?

Sales tax, including any consumer’s use tax reported by a taxpayer on a sales tax return, and withholding tax are included. Retailer’s use tax and consumer’s use tax are not eligible.

Does this apply to returns or just payments due?

Returns and payments for sales tax and withholding tax due between March 20, 2020 and April 30, 2020 are eligible for the first round of the program.

In the second round of the program, only payments for periods beginning April 1, 2020 through June 30, 2020 are eligible, not including the April 1-15 semimonthly period which was included in the first round of the program. Returns must still be timely filed for those periods.

When will I hear back from the Department?

The Department will contact you, either in writing or by phone, if a tax deferral was requested. Our goal is to respond to applications received within two weeks.

What if the deferral period isn’t sufficient?

If you need additional time to pay your balance due, please contact the Department to discuss payment arrangements.

What if I’m unable to make payments for more than one sales tax or withholding tax return? Do I need to request assistance for each return?

No. For example, if you were unable to pay the return due March 20, and you anticipate not being able to pay the return due April 30, both payments can be deferred now.

Can I request a refund of the sales tax or withholding tax I already submitted to the Department?

No, the Department will not refund payments already remitted.

I was approved for tax deferral during the first round of the program. Do I need to reapply for the second round?

No, if you were approved during the first round of the Iowa Small Business Relief Tax Deferral program, you will be automatically approved for the second round. You will receive a letter automatically from the Department providing additional information.

I was approved for tax deferral during the first round of the program. Do payments that were deferred under the first round get an additional 30 days?

No. Payment due dates and return filing dates that were delayed under the first round of the program are not changed by the new round of deferrals.

I was approved for a tax deferral. When I log into eFile & Pay, why is penalty and interest added to the balance due?

eFile & Pay automatically computes penalty and interest due under normal circumstances. If you have been approved, you should remit the original tax amount due within the deferral period, not including the penalty and interest. The Department will adjust any incorrectly identified penalty and interest amounts once we receive the payment of your balance due.

I was approved for a tax deferral. I just received a letter from the Department telling me action is required and I must pay my tax due now. Why did I receive this letter?

The Department’s system automatically generates these letters. If you have been approved for the first round of the tax deferral program, please remember you have an additional 60 days from the original due date to file a tax return or remit a tax payment. Also, please keep in mind penalties associated with tax filings and payments due during the period beginning March 20, 2020, through the close of business on April 30, 2020 will not be imposed at any time. Interest is suspended for 60 days from the date your tax return was due. If payment has not been made within those 60 days, interest will begin to accrue on the outstanding balance due on the first day of the calendar month after the 60th day.

If you have been approved for the second round of the tax deferral program, please remember you have an additional 30 days from the original due date to remit a tax payment. Also, please keep in mind penalties and interest is suspended for 30 days from the date your tax return was due. If payment has not been made within those 30 days, penalties will apply and interest will begin to accrue on the outstanding balance due on the first day of the calendar month after the 30th day.

On March 19, 2020, Governor Reynolds issued a Proclamation of Disaster Emergency temporarily suspending the imposition of penalty and interest on certain property tax payments. This Proclamation expires at midnight at the end of July 31, 2020. According to the Proclamation, no property tax interest under Iowa Code section 445.39 or Iowa Admin. Code r. 701-100.3 will accrue for any fraction of July 2020.

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Are property tax payment deadlines extended?

The Governor has issued a Proclamation that waived penalty and interest that would have accrued on property tax not paid by April 1, 2020. If property tax due was not paid by April 1, 2020, the tax is still delinquent, but penalty and interest for the late payment will not occur until after the Proclamation expires, in which case each fraction of a month will be counted as an entire month for purposes of calculating interest.

Additionally, on May 26, 2020, Governor Reynolds issued a Proclamation that temporarily suspends certain statutes related to tax sales for delinquent property taxes. You may contact your County Treasurer with questions related to the tax sale suspension. This Proclamation expires at midnight at the end of July 31, 2020.

NOTE: If you need to cancel a scheduled Income Tax payment, view the Need to cancel a Direct Debit payment? instructions from Do You Owe Tax? Here Are Your Payment Options.

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Is the Department still processing tax refunds and rent reimbursements?

Yes, so far the Department’s operations have not been affected by the changes related to the Department’s safety procedures. State income tax refunds currently are being processed at about the 30-day mark. Taxpayers can check the status of their refunds at the Department’s website where’s my refund page.

Does the filing and payment extension in Order 2020-01 affect the deadline for filing amended returns and requesting refunds for previous income tax years?

No, the filing and payment extension only applies to affected returns with a due date on or after March 19, 2020, but before July 31, 2020. Under Iowa law, a claim for refund or credit must be filed within 3 years of the date the return became due, or within 1 year of the date the payment of tax was made, whichever is later. For example, a refund request related to tax previously paid with a 2016 individual income tax return filed on April 30, 2017, must be made on an amended individual income tax return no later than April 30, 2020, in order to be considered timely.

Does the filing and payment extension in Order 2021-01 affect the deadline for filing amended returns and requesting refunds for previous income tax years?

(added 3/29/21)

No, the filing and payment extension only applies to 2020 individual income tax returns with a due date of April 30, 2021. Under Iowa law, a claim for refund or credit must be filed within 3 years of the date the return became due, or within 1 year of the date the payment of tax was made, whichever is later.

Order 2020-01 mentions estates and trusts, does the filing and payment extension affect IA 706 Inheritance Tax Returns?

No. Deadlines for the IA 1041 Fiduciary Income Tax Return filed by estates and trusts are extended by the Order, but the Order does not extend payment and filing deadlines related to the IA 706 Inheritance Tax Return. The regular deadline for paying Iowa inheritance tax reported on an IA 706 is the last day of the 9th month following the death of the decedent.

Does Order 2021-01 extend the filing and payment deadlines for taxpayers filing IA 706 Inheritance Tax Returns?

(added 5/4/21)

No. Order 2021-01 only extends filing and payment deadlines for individuals required to file the IA 1040 Iowa Individual Income Tax Return, any related forms or schedules, and any associated tax payments (including 1st-quarter estimated payments). Taxpayers required to file the IA 706 Iowa Inheritance Tax Return, any related returns and schedules, and any associated tax payments are still subject to the regular deadline. The regular deadline for filing the IA 706 and paying Iowa inheritance tax reported on that form is the last day of the 9th month following the death of the decedent.

Does the filing and payment extension in Order 2020-01 apply to taxpayers that file returns on a fiscal-year basis?

Yes, the filing and payment extension applies to any tax return and associated tax payment listed in Order 2020-01 with a due date on or after March 19, 2020, but before July 31, 2020. The filing and payment extension does not apply to estimated tax payments. For information about estimated tax payments, see the Estimated (Income Tax) Payments section below.

Does the filing and payment extension in Order 2021-01 apply to taxpayers that file returns on a fiscal-year basis?

(added 3/29/21)

No. Order 2021-01 applies only to calendar year individual income tax filers.

Does the due date extension in Order 2020-01 apply to previously extended returns?

Yes, previously extended tax returns that have an extended due date on or after March 19, 2020, but before July 31, 2020, benefit from the filing extension to July 31, 2020, granted in Order 2020-01. Note, however, that under Iowa law an automatic extension only extends the time to file a return, not to pay the tax. Therefore, taxpayers with tax due prior to March 19, 2020 (the start date of Order 2020-01) may accrue interest on the balance of unpaid tax. The suspension of interest provided in Order 2020-01 only applies to interest that accrues between March 19, 2020, and July 31, 2020. If you believe you were assessed interest on unpaid tax for the period covered by Order 2020-01, please contact the Department using the information provided on your Notice of Assessment.

Example: Corporation XYZ’s 2018 tax year began on July 1, 2018, and ended June 30, 2019. Corporation XYZ paid 90% of the tax due with regard to its 2018 IA 1120 by the original filing deadline of October 31, 2019. Therefore, Corporation XYZ was automatically granted a 6-month extension, until April 30, 2020, to file its 2018 IA 1120 return. Because this April 30, 2020, extended deadline falls within the time period covered in the Order, and because the IA 1120 is a return listed in the Order, corporation XYZ has until July 31, 2020, to file its 2018 IA 1120. Interest is due on any remaining tax due with regard to its 2018 IA 1120 from November 1, 2019, until such time the tax is paid, except that interest is not due during the period covered by the Order (March 19, 2020, through July 31, 2020).

Can a taxpayer change the date of a scheduled IA 1040V payment setup for ACH payment by tax preparation software?

No. The taxpayer cannot change the date of a scheduled tax payment, but they can send an email to idreft@iowa.gov and ask them to cancel the payment. To do this, the taxpayer must be specific about what they want to accomplish. For example, I wish to cancel the final 2019 individual income tax payment, in the amount of $X,XXX. The taxpayers must include their name and the last 4 digits of their social security number.

If the taxpayer wishes to schedule a new payment they can accomplish this using eFile & Pay. Another option is to complete an IA 1040V payment voucher and mail this form, along with a check, to the address noted on the form by the extended due date.

eFile and Pay can also be used to pay estimated income tax payments. After enrolling users have the ability to review payment history or cancel scheduled payments. For more information visit eFile & Pay.

For tax year 2019, what is the deadline for designating an Iowa first-time homebuyer savings account and beneficiary for an account opened during 2019?

(updated 7/1/2020)

Section 134 of House File 2641, passed by the legislature and signed into law by Governor Reynolds on June 29, 2020, modifies the deadline by which taxpayers may designate an account as a first-time homebuyer savings account and an individual as a beneficiary of such account, for accounts opened during 2019. Taxpayers have until July 31, 2020 to establish an account created in 2019 as an Iowa first-time homebuyer savings account, and to designate a beneficiary, by filing the First-Time Homebuyer Account Holder and Designated Beneficiary Form, 41-162 with the Department.

For tax year 2020, what is the deadline for designating an Iowa first-time homebuyer savings account and beneficiary for an account opened during 2020?

(updated 5/28/21)

The deadline for designating an account as a first-time homebuyer savings account and an individual as a beneficiary of such account has been extended for tax year 2020. For accounts opened during 2020, the deadline is June 1, 2021. A taxpayer may establish an account as an Iowa first-time homebuyer savings account and designate a beneficiary by filing the First-Time Homebuyer Account Holder and Designated Beneficiary Form, 41-162 with the Department on or before June 1, 2021.

For tax year 2019, what is the deadline for making tax deductible contributions to an Iowa Educational Savings (529) plan?

(updated 7/1/20)

Section 133 of House File 2641, passed by the legislature and signed into law by Governor Reynolds on June 29, 2020, modifies the deadline by which taxpayers may make tax deductible contributions to an Iowa Educational Savings (529) plan and elect to have that contribution attributed to tax year 2019. Taxpayers who make qualifying contributions to an Iowa 529 plan between January 1, 2020, and July 31, 2020 may elect to deduct those contributions (up to the contribution limit) on their 2019 Iowa income tax returns rather than their 2020 returns.

For tax year 2020, what is the deadline for making tax deductible contributions to an Iowa Educational Savings (529) plan?

(updated 5/28/21)

The deadline to elect to have a qualifying contribution to an Iowa 529 plan attributed to the prior tax year has been extended for tax year 2020. The deadline to make such an election is June 1, 2021. Taxpayers who make qualifying contributions to an Iowa 529 plan between January 1, 2021, and June 1, 2021, may elect to deduct those contributions (up to the contribution limit) on their 2020 Iowa income tax returns rather than their 2021 returns.

I withdrew money from an Iowa 529 Plan account to pay for certain qualifying education expenses. Some of that money was refunded to me by the educational institution. How will the Department treat those refunds?

For purposes of Iowa’s income tax, the Department will not consider a refund of money withdrawn from an Iowa 529 Plan account as a withdrawal or transfer that is required to be added back when calculating Iowa net income if the following criteria are met: (1) the refunded amounts must be recontributed to the Iowa educational savings plan trust described in Iowa Code chapter 12D (any amounts refunded, but not recontributed may need to be added back when calculating Iowa net income); (2) the recontribution must be made to the same account from which the money was originally withdrawn (any amounts refunded, but not recontributed may need to be added back when calculating Iowa net income); (3) the recontribution must occur within sixty (60) days of the refund; and (4) the recontribution amount cannot exceed the amount refunded by the educational institution. An Iowa taxpayer cannot deduct the recontribution amount when determining his or her Iowa net income. The recontribution amount is not taken into account for purposes of determining whether the taxpayer has reached the contribution limit in a given tax year. The Department intends to adopt administrative rules that reflect this position in order to clarify the tax treatment of this kind of refund.

What if I am unable to file my return that was extended in Order 2020-01 by the new due date of July 31, 2020?

Taxpayers with an Iowa income tax return (IA 1040, IA 1040C, IA 1041, IA 1120, IA 1120S, or IA 1065) or an Iowa franchise tax return (IA 1120F) that had an original due date extended by Order 2020-01 to July 31, 2020, will receive an automatic 6-month extension to file that return until January 31, 2021, if at least 90% of the tax due with respect to that return is paid by the extended due date of July 31, 2020. No application or form is necessary to receive the extension if 90% of the tax due is paid by July 31, 2020. This automatic extension is not available to previously-extended tax returns that were provided an additional extension by Order 2020-01, or to the Credit Union Moneys and Credits Tax Confidential Report. This automatic extension only extends the time to file your income or franchise tax return, not pay the tax. Any remaining tax due will accrue interest beginning on August 1, 2020, until such time as the tax is paid in full. For more information on automatic extensions of Iowa income and franchise tax returns, see Iowa Admin. Code rules 701-301.2(4) (individuals), 701-501.2(4) (corporations), 701-601.2(3) (financial institutions), and 701-700.5 (fiduciaries).

What if I am unable to file my 2020 individual income tax return that was extended in Order 2021-01 by the new due date of June 1, 2021?

(added 3/29/21)

2020 Individual Iowa income tax returns (IA 1040) that had an original due date extended by Order 2021-01 to June 1, 2021, will receive an automatic 6-month extension to file that return until December 1, 2021, if at least 90% of the tax due with respect to that return is paid by the extended due date of June 1, 2021. No application or form is necessary to receive the extension if 90% of the tax due is paid by June 1, 2021. This automatic extension only extends the time to file your individual income tax return, not pay the tax. Any remaining tax due will accrue interest beginning on June 2, 2021, until such time as the tax is paid in full. For more information on automatic extensions of Iowa income see Iowa Admin. Code rules 701-301.2(4) (individuals)

If my business receives a federal Paycheck Protection Program (PPP) loan that is later forgiven and excluded from gross income for federal income tax purposes under section 1106 of the federal CARES Act, will that income tax exclusion also apply for Iowa income tax purposes?

(updated 7/16/21)

A taxpayer's PPP loan that is forgiven and properly excluded from federal gross income under section 1106 of the federal CARES Act will also qualify for exclusion from income for Iowa tax purposes. This guidance previously stated that Iowa was not conformed with section 1106 of the federal CARES Act or sections 276(a) and 278(a) of the Consolidated Appropriations Act of 2021 for tax years beginning prior to January 1, 2020. Therefore PPP loan forgiveness received in a tax year beginning prior to January 1, 2020, may have been considered income for Iowa tax purposes. However, the Iowa legislature has since retroactively conformed with both the federal income exclusion of PPP loans, and the federal treatment of deductibility of qualifying expenses or other tax benefits provided under the Federal Consolidated Appropriations Act of 2021, for 2019, ensuring these funds and associated expenses will receive the same treatment for both Iowa and federal purposes even if they were received or forgiven in tax year 2019. For more information about this item of nonconformity, see Iowa Nonconformity: The Federal Consolidated Appropriations Act of 2021

Will the federal COVID-19 economic impact payments be taxable in Iowa?

(updated 1/28/21)

No. The COVID-19 economic impact payments authorized in section 2201 of the federal CARES Act, or in section 272 of the federal Consolidated Appropriations Act of 2021, or in section 9601 of the American Recovery Plan Act, whether in the form of a rebate or a refundable tax credit, will not be included in Iowa taxable income or added back as part of an individual’s reportable federal income tax refund for Iowa individual income tax purposes.

Does Iowa exclude $10,200 of unemployment income from taxation?

(added 3/29/21)

Yes. As a result of general automatic rolling conformity Iowa will follow the federal legislation to exclude the first $10,200 of unemployment compensation from taxation in tax year 2020 for qualifying taxpayers. Taxpayers who have not filed an original 2020 individual income tax return should report the unemployment compensation exclusion amount on the IA 1040, line 14, using a code of “M”. The Department will make an automatic adjustment for taxpayers who have already filed their Iowa tax return. Taxpayers will not need to file an amended Iowa tax return if their only adjustment pertains to the adjustment for unemployment compensation.

What should I do if I filed my tax return without claiming the unemployment compensation exclusion?

(added 3/29/21)

If you filed your original Iowa tax return and did not report your unemployment compensation exclusion amount, do not file an amended Iowa return only to claim this unemployment compensation exclusion. The Department will adjust your return for you. Filing an amended return may delay the adjustment process.

Will the presence of employees temporarily telecommuting from within Iowa solely as a result of states of emergency declared in response to COVID-19 establish Iowa income tax nexus for a business that does not otherwise have nexus in this state?

No. The Iowa corporate income tax is imposed on all corporations “doing business” within the state or deriving income from sources within Iowa. Business entities that do not owe taxes but which are “doing business” in the state are required to file Iowa returns. The term “doing business” is used in a comprehensive sense and includes all activities or any transactions for the purpose of financial or pecuniary gain or profit. Having employees working within the state of Iowa meets the definition of “doing business” in Iowa and subjects a company to the Iowa corporate income tax, unless the business qualifies for the protections of Public Law 86-272.

However, in light of the unusual circumstances presented by the COVID-19 pandemic in which workers are required or strongly encouraged by state and federal governments to remain at home and limit social contact, the Department does not believe that the presence of employees who normally work outside of Iowa, but who are now working remotely from within the state solely as a result of the COVID-19 pandemic state of emergency represents the same type of business activity on the part of the employer contemplated by the law.

Therefore, while Iowa’s state of emergency in response to COVID-19, or similar declared state of emergency in the state where the worker normally worked prior to the COVID-19 pandemic, remains in effect, the Department will not consider the presence of one or more employees working remotely from within Iowa solely due to the COVID-19 pandemic, by itself, sufficient business activity within the state to establish Iowa corporate income tax nexus. Nor does the Department consider such presence by non-sales employees due to the pandemic sufficient, by itself, to cause a corporation to lose the protections of Public Law 86-272.

The position contained in this document only applies to states of emergency declared in response to COVID-19. This position does not extend to other facts and circumstances.

Will Iowa individual income tax filing and withholding requirements change as a result of temporary telecommuting due to COVID-19?

No, Iowa individual income tax and withholding requirements have not been modified by the COVID-19 pandemic.

Compensation for personal services rendered within the state of Iowa is subject to Iowa income tax, unless that income is exempted by a specific provision of Iowa law. Generally, an employer maintaining an office or transacting business within this state is required to withhold for employees.

Iowa individual residents are subject to tax on their entire income, wherever earned, so an Iowa resident’s income tax return filing requirements should not be affected by temporary telecommuting in Iowa or another state. Nonresidents of Iowa who normally work in Iowa but are temporarily telecommuting in another state, or who normally work outside of Iowa but are temporarily telecommuting in Iowa, may need to adjust their income apportionment or their Iowa income tax return filing requirement.

Note, however, that Iowa has a reciprocal agreement with the state of Illinois. This agreement provides that any wages or salary made by an Iowa resident working in Illinois is taxable only to Iowa and not to Illinois, and that any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa. This may eliminate or reduce wage sourcing issues with respect to these individuals. View more information on this Iowa-Illinois Reciprocal Agreement.

Does the filing and payment extension referenced in Order 2020-01 apply to required estimated income tax payments?

(added 3/29/21)

No. Order 2020-01 does not provide for an extension of time to file and pay required estimated income tax payments.

Does the filing and payment extension referenced in Order 2021-01 apply to required estimated income tax payments?

(updated 3/29/21)

Yes. Order 2021-01 does change the first quarter 2021 estimated individual income tax due date for calendar year filers from April 30, 2021 to June 1, 2021.

In light of Order 2020-01, are income tax estimated payments still required to be made by their regular due date?

(updated 3/29/21)

Yes. Under Order 2020-01 income tax estimates are still required to be made by their regular due date. For example, a calendar-year filer’s 1st quarter and 2nd quarter 2020 estimated payments are due on April 30, 2020, and June 30, 2020, respectively.

In light of Order 2021-01, is the first income tax estimated payment still required to be made by their regular due date?

(added 3/29/21)

Under Order 2021-01 the first quarter 2021 estimated individual income tax due date for calendar year filers changed from April 30, 2021 to June 1, 2021.

Does the penalty waiver provided in Order 2020-01 or the estimated tax underpayment penalty relief provided in Order 2020-03 apply to penalties for underpayment of tax year 2018 or 2019 estimated taxes (IA 2210 penalties) required to be paid with the return?

No. Estimated taxes were specifically excluded from the relief in Order 2020-01. The estimated tax underpayment penalty relief provided in Order 2020-03 only applies to certain estimated tax installments due for tax years that begin in 2020. For example, 2019 estimated tax payments for calendar year filers were due in four installments (e.g. April 30, June 30, September 30, January 31, 2020) and these penalties are imposed for failure to make adequate estimated payments on time. Those estimated payments are not covered by these Orders. Penalties calculated on the 2019 IA 2210, 2210F, or 2210S (individuals) or 2019 IA 2220 (corporations and financial institutions subject to franchise tax) still must be paid with the Iowa return. The same outcome would apply to fiscal-year filers for tax years that began in 2018 or 2019 with due dates that fall within the period covered by Order 2020-01. Because estimated payments were specifically excluded from Order 2020-01, underpayment penalties due on required payments during the period covered by that order and those returns will still apply. See the appropriate forms for more details.

If an overpayment calculated on a 2019 individual income tax return filed after April 30, 2020, is requested to be applied to the taxpayer’s 2020 income tax year as a credit carryforward of estimated tax, will this application of the overpaid income tax be considered a timely 1st or 2nd quarter estimated income tax payment for 2020?

It depends. The actual payment date of the tax payment(s) that gave rise to the overpayment are used to determine whether an underpayment of estimated tax occurred and to calculate penalties and interest on that underpayment. The overpayment of tax must exist on or before the due date of the quarterly estimate in order to be considered a timely estimated payment with respect to that quarter.

Example 1: Taxpayer X, a calendar-year filer, makes a $5,000 payment on a 2019 form IA 1040-V on April 30, 2020. Taxpayer X then timely files a 2019 Iowa income tax return on July 31, 2020, and reports a $1,000 overpayment to be applied to 2020 Iowa estimated tax. The $1,000 overpayment was made on April 30, 2020, so it is treated as an estimated tax payment made on April 30, 2020. The $1,000 overpayment will be treated as a timely-filed 1st quarter estimate for purposes of determining whether an estimated tax underpayment penalty applies.

Example 2: Taxpayer Y, a calendar-year filer, does not make any estimated tax payments on or before April 30, 2020, or June 30, 2020. Taxpayer Y does make a $5,000 payment on a 2019 form IA 1040-V on July 31, 2020. Taxpayer Y has paid at least 90% of Taxpayer Y’s 2019 income tax liability by July 31, 2020, and therefore qualifies for an automatic 6-month filing extension until January 31, 2021. Taxpayer Y then timely files a 2019 Iowa income tax return on December 1, 2020, and reports a $1,000 overpayment to be applied to 2020 Iowa estimated tax. The $1,000 overpayment was made on July 31, 2020, so it is treated as an estimated tax payment made on July 31, 2020. The $1,000 overpayment will be treated as a late-filed 1st quarter estimate for purposes of determining whether an estimated tax underpayment penalty applies.

If an overpayment calculated on a 2020 individual income tax return filed after April 30, 2021, is requested to be applied to the taxpayer’s 2021 income tax year as a credit carryforward of estimated tax, will this application of the overpaid income tax be considered a timely 1st or 2nd quarter estimated income tax payment for 2021?

(added 3/29/21)

It depends. The actual payment date of the tax payment(s) that gave rise to the overpayment are used to determine whether an underpayment of estimated tax occurred and to calculate penalties and interest on that underpayment. The overpayment of tax must exist on or before the due date of the quarterly estimate in order to be considered a timely estimated payment with respect to that quarter. For tax year 2021, Order 2021-01 changed the due date of the first quarter individual income tax estimate from April, 30, 2021 to June 1, 2021.

Example: Taxpayer Y, a calendar-year filer, does not make any estimated tax payments on or before June 1, 2021.  Taxpayer Y does make a $5,000 payment on a 2020 form IA 1040-V on June 1, 2021. Taxpayer Y has paid at least 90% of Taxpayer Y’s 2020 income tax liability by June 1, 2021, and therefore qualifies for an automatic 6-month filing extension until December 1, 2021. Taxpayer Y then timely files a 2020 Iowa individual income tax return on December 1, 2021, and reports a $1,000 overpayment to be applied to 2021 Iowa estimated tax. The $1,000 overpayment was made on June 1, 2021, so it is treated as an estimated tax payment made on June 1, 2021. The $1,000 overpayment will be treated as a timely-filed 1st quarter estimate for purposes of determining whether an estimated tax underpayment penalty applies.

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Specific to Individuals

What safe harbors from underpayment penalties are available to individuals under existing Iowa statute and rule for estimated payments for tax year 2020?

There are a number of statutory and rule-based safe harbor protections from underpayment penalties available for individuals required to make estimated payments of tax under Iowa law for tax year 2020.

Iowa determines underpayment of estimated tax for individuals in generally the same manner as provided under the Internal Revenue Code. Generally, taxpayers who will owe less than $200 in tax after withholding for the taxable year will not face a penalty for underpayment of estimated tax. Individuals may also avoid an underpayment penalty if current year payments (estimated payments + withholding) made by the installment due dates equal or exceed one of the following:

1. 100% of the individual’s 2019 Iowa tax liability, or 110% for high income taxpayers. A high income taxpayer includes any taxpayer whose 2019 federal adjusted gross income (as adjusted for any Iowa decoupling including bonus depreciation/section 179 adjustment) is greater than $150,000 ($75,000 for married filing separate federal returns).
2. 90% of the tax liability on the taxpayer’s 2020 income or annualized income as determined on form IA 2210 and IA 2210 Schedule AI.

For more information on estimated income tax payments and underpayment penalties for individuals, see Estimated income Tax Payments and Iowa Administrative Code chapter 701—308. Also see below for additional relief from certain 2020 estimated income tax underpayment penalties granted in Order 2020-03.

Has the Department granted any additional underpayment penalty relief for tax year 2020, because I intend to rely on my 2019 tax liability for computing my safe harbor estimates for tax year 2020, but my 2019 tax return will not be complete until the extended Iowa filing deadline of July 31, 2020?

Yes. As explained below, Order 2020-03 allows taxpayers to use their 2018 income tax liability (or 110% of their 2018 liability for high income taxpayers) to compute safe harbor estimates for 2020 estimated tax installment payments with a due date on or after April 30, 2020, and before July 31, 2020. For most individuals, this additional relief will apply to their 1st and 2nd quarter estimates for tax year 2020 due on or before April 30, 2020, and June 30, 2020.

A taxpayer will not be subject to penalties for underpayment of estimated tax with respect to both installments due on April 30, 2020, and June 30, 2020, if the individual pays the following amounts for each installment payment:

• 27.5% of their 2018 Iowa tax liability for a taxpayer whose 2018 federal adjusted gross income (as adjusted for any Iowa decoupling including bonus depreciation/section 179 adjustment) is greater than $150,000, or greater than $75,000 for a married filing separate taxpayer; or
• 25% of their 2018 Iowa tax liability for any other taxpayer.

As a result, for taxpayers who computed their tax year 2019 safe harbor estimates using their 2018 tax liability, and had no change in their withholding since 2019, their 1st and 2nd quarter safe harbor estimated payments for tax year 2020 will match their tax year 2019 required quarterly estimated payment.

However, any taxpayer who takes advantage of the underpayment penalty relief provided in Order 2020-03 must add the remaining amount due for these installments to their next installment due on or after July 31, 2020. For most individuals, this will increase the required 3rd quarter estimate due September 30, 2020. Failure to pay the increased required installment by the taxpayer’s first due date on or after July 31, 2020, will be considered an underpayment of estimated taxes for the installment.

Example 1: Taxpayer A is an individual with a 2018 federal adjusted gross income as modified for Iowa purposes of $100,000. Taxpayer A has no Iowa withholding from wages. Taxpayer A filed a 2018 IA 1040 Iowa Individual Income Tax Return that covered a period of 12 months, and showed a total tax due of $5,000.

Taxpayer A’s 1st and 2nd installments of 2020 quarterly estimated tax are due on April 30, 2020, and June 30, 2020, respectively. Taxpayer A pays $1,250 (i.e., $5,000 × 0.25) in estimated tax on or before the April 30, 2020 due date, and pays $1,250 in estimated tax on or before June 30, 2020. As a result, Taxpayer A will not be subject to a penalty for underpayment of estimated tax for the 1st and 2nd quarter of 2020.

Taxpayer A timely files a 2019 IA 1040 Iowa Individual Income Tax Return on July 31, 2020, showing a tax due of $7,500, and computes 2020 safe harbor quarterly estimates of 1,875 (i.e., $7,500 x 0.25) using Taxpayer A’s 2019 Iowa return. The difference between these 2020 safe harbor estimates for the first two quarters ($1,875 x 2 = $3,750) and the safe harbor payments Taxpayer A was required to pay pursuant to Order 2020-03 ($2,500) must be added to Taxpayer A’s 3rd quarter safe harbor estimated payment for 2020. In other words, Taxpayer A adds $1,250 (i.e., $3,750 - $2,500) to the $1,875 3rd quarter installment, and therefore must pay at least $3,125 (i.e., $1,250 + $1,875) as a 3rd quarter estimate by September 30, 2020 in order to avoid an underpayment penalty for the 3rd quarter.

Example 2: Taxpayer B is an individual with a 2018 federal adjusted gross income as modified for Iowa purposes of $300,000. Taxpayer B filed a 2018 IA 1040 Iowa Individual Income Tax Return that covered a period of 12 months, and showed a total tax due of $20,000. Taxpayer B also had a 2019 tax liability of $25,000 on Taxpayer B’s 2019 Iowa individual income tax return.

Taxpayer B’s 1st installment of 2020 quarterly estimated tax is due on April 30, 2020. Taxpayer B pays $5,500 (i.e., $20,000 × 0.275) in estimated tax on or before the April 30, 2020, due date.

Taxpayer B’s 2nd installment of 2020 quarterly estimated tax is due on June 30, 2020. Taxpayer B pays $5,500 (i.e., $20,000 × 0.275) in estimated tax on or before the June 30, 2020, due date. As a result, Taxpayer B will not be subject to a penalty for underpayment of estimated tax for the 1st and 2nd quarter of 2020.

Taxpayer B’s 3rd installment of 2020 quarterly estimated tax is due on September 30, 2020. Taxpayer B pays $6,875 (i.e., $25,000 x 0.275) in estimated tax on September 30, 2020.

Taxpayer B is subject to an underpayment penalty for the 3rd installment payment because Taxpayer B did not pay the additional estimated tax required under Order 2020-03. To avoid underpayment penalty, Taxpayer B should have added to the 3rd installment payment the difference between the 1st and 2nd required installment payments required without regard to the relief provided in Order 2020-03 ($6,875 × 2 = $13,750) less the 1st and 2nd required installment payments required to be made under Order 2020-03 ($5,500 × 2 = $11,000). Thus, Taxpayer B should have paid at least $9,625 by September 30, 2020 (i.e., ($13,750 - $11,000) + $6,875).

Is the relief granted in Order 2020-03 available even if I file my 2019 Iowa income tax return prior to July 31, 2020?

Yes, the relief granted in Order 2020-03 is available to any taxpayer required to make a tax year 2020 estimated income tax payment on or after April 30, 2020, but before July 31, 2020.

What if I rely on the underpayment relief provided in Order 2020-03 in computing and paying my applicable safe harbor estimated payments for 2020, but my minimum estimated installment payments using the regular underpayment penalty exceptions are later determined to be lower when I complete my 2020 Iowa income tax return?

You will be considered to have overpaid your installment and the overpayment will be carried to the next installment due. The underpayment penalty relief provided in Order 2020-03 is in addition to any existing underpayment penalty exceptions already provided by Iowa law.

Does Order 2020-03 indicate that a taxpayer will not be assessed any estimated tax underpayment penalty if they pay 50% of the 2018 income tax liability with the 2nd installment?

This is only true if the taxpayer also timely paid at least 25% (or 27.5% for a high income taxpayer) of the 2018 income tax liability with the 1st quarter income tax estimate. By the due date of the 2nd quarter installment the taxpayer must pay at least 50% (or 55% for a high income taxpayer) of the 2018 income tax liability, if the relief granted in Order 2020-03 is utilized. The underpayment of estimated tax penalty is calculated separately for each quarter.

What relief is available if I believe my income for tax year 2020 will vary substantially between different quarters because of economic disruptions caused by COVID-19?

Iowa law permits a taxpayer to compute estimated tax underpayment penalty using the annualized income installment method if your income varied during the year. You may be able to reduce or eliminate the amount of one or more of your required installments by using the annualized income installment method calculated on the IA 2210 Schedule AI.

What if I cannot pay my quarterly estimates because of economic hardship caused by COVID-19?

Individuals who cannot pay quarterly estimates may apply to the Department for a waiver of underpayment penalty. The penalty for underpayment of estimated tax may be waived in the following situations:

1. The underpayment was due to casualty, disaster, or other unusual circumstances, or
2. The underpayment was made by an individual who retired after having attained age 62, or who became disabled in the tax year for which the estimated payment was due or in the preceding tax year, and the underpayment was due to reasonable cause and not due to willful neglect. To apply for a waiver from the estimated income tax underpayment penalty, use the Penalty Waiver Request, 78-629.

For more information on estimated income tax payments and underpayment penalties for individuals, see Estimated Income Tax Payments and Iowa Administrative Code Chapter 701—308.

Specific to Corporations and Financial Institutions

What safe harbors are available to corporations and financial institutions under Iowa statute and rule for estimated payments for tax year 2020?

There are a number of statutory and rule-based safe harbor protections available for corporations and financial institutions making estimated payments of tax under Iowa law for tax year 2020. Corporations and financial institutions may avoid a penalty for underpayment of estimated tax if certain requirements are met, but unlike individuals, Iowa law does not allow corporations and financial institutions to apply for the two underpayment penalty waiver provisions described under the question “What if I cannot pay my quarterly estimates because of economic hardship caused by COVID-19?”. For details on the corporations and financial institutions underpayment penalty exceptions, see Iowa Code section 422.89 and Iowa Administrative Code rules 701—505.5(2) (corporations) and 701—604.5(2) (financial institutions).

Is any additional relief available to corporations and financial institutions required to make tax year 2020 estimated payments due prior to July 31?

Order 2020-03 allows taxpayers to use their 2018 income or franchise tax liability to compute safe harbor estimates for tax year 2020 installment payments with a due date on or after April 30, 2020, and before July 31, 2020. This relief is available to taxpayers that file on a calendar-year or fiscal-year basis, but it only applies to estimated payments due for a tax year beginning during calendar year 2020 (i.e. tax year 2020). However, any taxpayer who takes advantage of the underpayment penalty relief provided in Order 2020-03 must add the remaining amount due for these installments to their next installment due on or after July 31, 2020. Failure to pay the increased required installment by the taxpayer’s first due date on or after July 31, 2020, will be considered an underpayment of estimated taxes for the installment.

Pursuant to Order 2020-03, corporations or financial institutions who filed a 2018 Iowa income tax return that covered a period of 12 months and showed an Iowa tax liability will not be subject to penalties for underpayment of estimated tax for tax year 2020 quarterly estimated payments with a due date on or after April 30, 2020, and before July 31, 2020, if the taxpayer pays at least 25% of the 2018 Iowa tax liability for each 2020 installment due during that period.

Example 1: Corporation ABC, a calendar-year filer, filed a 2018 IA 1120 Iowa Corporate Income Tax Return with the Department showing a tax due of $50,000.

Corporation ABC’s 1st installment of 2020 quarterly estimated tax is due on April 30, 2020. Corporation ABC pays $12,500 (i.e., $50,000 × 0.25) in estimated tax prior to the April 30, 2020 due date.

Corporation ABC’s 2nd installment of 2020 quarterly estimated tax is due on June 30, 2020. Corporation ABC makes another installment payment of $12,500 in estimated tax prior to June 30, 2020. Corporation ABC will not be subject to a penalty for underpayment of estimated tax for the 1st and 2nd quarter of 2020.

Corporation ABC timely files its 2019 IA 1120 Iowa Corporate Income Tax Return on July 31, 2020, showing a tax due of $60,000, and computes 2020 safe harbor quarterly estimates of $15,000 (i.e., $60,000 x 0.25) using its 2019 Iowa return. The difference between these 2020 safe harbor estimates for the 1st two quarters ($15,000 x 2 = $30,000) and the safe harbor payments it was required to pay pursuant to Order 2020-03 ($25,000) must be added to its 3rd quarter safe harbor estimate payment for 2020. In other words, Corporation ABC adds $5,000 (i.e., $30,000 - $25,000) to its $15,000 3rd quarter installment, and therefore must pay at least $20,000 (i.e., $5,000 + $15,000) as a 3rd quarter estimate by September 30, 2020 in order to avoid an underpayment penalty for the 3rd quarter.

Example 2: Corporation XYZ, a calendar-year filer, filed a 2018 IA 1120 Iowa Corporate Income Tax Return with the Department showing a tax due of $75,000. Corporation XYZ also had a 2019 tax liability of $160,000 on the 2019 IA 1120 Iowa Corporate Income Tax Return.

Corporation XYZ’s 1st installment of 2020 quarterly estimated tax is due on April 30, 2020. Corporation XYZ pays $18,750 (i.e., $75,000 × 0.25) in estimated tax on or before the April 30, 2020 due date.

Corporation XYZ’s 2nd installment of 2020 quarterly estimated tax is due on June 30, 2020. Corporation XYZ pays $18,750 (i.e., $75,000 × 0.25) in estimated tax on or before the June 30, 2020 due date. As a result, Corporation XYZ will not be subject to a penalty for underpayment of estimated tax for the1st and 2nd quarter of 2020.

Corporation XYZ’s 3rd installment of 2020 quarterly estimated tax is due on September 30, 2020. Corporation XYZ pays $40,000 (i.e., $160,000 x 0.25) in estimated tax on September 30, 2020.

Corporation XYZ is subject to an underpayment penalty for the 3rd installment payment because Corporation XYZ did not pay the additional estimated tax required under Order 2020-03. To avoid underpayment penalty, Corporation XYZ should have added to the 3rd installment payment at least the difference between the 1st and 2nd required installment payments required without regard to the 2018 safe harbor provisions relief provided in Order 2020-03 ($40,000 x 2 = $80,000) less the 1st and 2nd required installment tax payments required to be made under Order 2020-03 ($18,750 x 2 = $37,500). Thus, Corporation XYZ should have paid at least $ 82,500 by September 30, 2020 (i.e., ($80,000 − $37,500) + $40,000).

Is the relief granted in Order 2020-03 available even if the taxpayer files its 2019 Iowa income or franchise tax return prior to July 31, 2020?

Yes, the relief granted in Order 2020-03 is available to any taxpayer required to make a tax year 2020 estimated income or franchise tax payment on or after April 30, 2020, but before July 31, 2020.

What if the taxpayer relies upon the underpayment relief provided in Order 2020-03 in computing and paying the applicable safe harbor estimated payments for 2020, but the minimum estimated installment payments using the regular underpayment penalty exceptions are later determined to be lower when the 2020 Iowa income or franchise tax return is completed?

The taxpayer will be considered to have overpaid its installment and the overpayment will be carried to the next installment due. The underpayment penalty relief provided in Order 2020-03 is in addition to any existing underpayment penalty exceptions already provided by Iowa law.

For a calendar-year filer that has two tax year 2020 installments covered by Order 2020-03, does the Order indicate that the taxpayer will not be assessed any estimated tax underpayment penalty if the taxpayer pays 50% of the 2018 income tax liability with the 2nd installment?

This is only true if the taxpayer also timely paid at least 25% of the 2018 income or franchise tax liability with the 1st quarter income tax estimate. By the due date of the 2nd quarter installment, the taxpayer must pay at least 50% of the 2018 income or franchise tax liability, if the relief granted in Order 2020-03 is utilized. The underpayment of estimated tax penalty is calculated separately for each quarter.

What relief is available if the taxpayer believes its income for tax year 2020 will vary substantially between different quarters because of economic disruptions caused by COVID-19?

Iowa law permits a taxpayer to compute estimated tax underpayment penalty using the annualized income installment method if its income varied during the year. A taxpayer may be able to reduce or eliminate the amount of one or more of its required installments by using the annualized income installment method calculated on the IA 2220.

What if a taxpayer cannot pay its quarterly estimates because of economic hardship caused by COVID-19?

While the Department sympathizes with taxpayers’ economic hardship caused by COVID-19, Iowa law does not allow corporations and financial institutions to apply for the two underpayment penalty waiver provisions described for individuals under “What if I cannot pay my quarterly estimates because of economic hardship caused by COVID-19?”

Have the sales tax return due dates and payment dates been extended?

No, the Department has not extended any sales tax due date. The filing and payment due date for sales tax remain as normal. But, as described below, taxpayers can apply for relief on a case-by-case basis.

Are there any options related to sales tax payments or filings?

To provide financial assistance to small businesses economically impacted by the COVID-19 pandemic, the Iowa Department of Revenue created the Iowa Small Business Relief Tax Deferral program to accept applications for deferrals of return filings and payments due, including a suspension of penalty and interest, between and including March 20, 2020 and April 30, 2020 for either sales tax, withholding tax, or both. While the initial application period is now complete, the Department will make a second round of the Iowa Small Business Relief Tax Deferral program available for tax periods beginning April 1, 2020 through June 30, 2020. Complete and submit a Small Business Relief Tax Deferral application (the application period has ended) to request deferral. Submitting an application does not guarantee assistance.

Taxpayers that are not granted relief through the application process described above may be qualified for relief from penalty (but not interest) if they meet one of the reasons described in Iowa Code section 421.27. Requests for a penalty waiver are made on the Department’s Penalty Waiver Request, 78-629.

Does the extension in Order 2020-01 for withholding payments by semimonthly depositors that are due on March 25, 2020, to the new due date of April 10, 2020, also apply to bulk filers?

Yes, the extension relates to both the semimonthly data and payment regardless of whether the taxpayer chooses to file themselves or through a service provider.

Is there a way to request an extension for withholding payments and other withholding filings not covered by Order 2020-01?

To provide financial assistance to small businesses economically impacted by the COVID-19 pandemic, the Iowa Department of Revenue created the Iowa Small Business Relief Tax Deferral program to accept applications for deferrals of return filings and payments due, including a suspension of penalty and interest, between and including March 20, 2020 and April 30, 2020 for either sales tax, withholding tax, or both. While the initial application period is now complete, the Department will make a second round of the Iowa Small Business Relief Tax Deferral program available for tax periods beginning April 1, 2020 through June 30, 2020. Complete and submit a Small Business Relief Tax Deferral application (the application period has ended) to request deferral. Submitting an application does not guarantee assistance.

Taxpayers that are not granted relief through the application process described above may be qualified for relief from penalty (but not interest) if they meet one of the reasons described in Iowa Code section 421.27. Requests for a penalty waiver are made on the Department’s Penalty Waiver Request, 78-629.

Will the Department accept a tax return preparer’s electronically-created signature on an Iowa withholding tax return in lieu of a handwritten (or “wet”) signature?

Yes, if the Internal Revenue Service would accept the signature as a paid preparer’s signature on a federal withholding tax return, then the Department would also accept the signature.

What payments are covered by this extension?

The Order extends any due date for the payment of sales tax or individual income tax withholding that falls on or after August 27, 2020, but before October 1, 2020. They are now due October 31, 2020.

• For sales tax, the Order extends semimonthly payments originally due September 10 and 25 and monthly payments originally due September 20.
• For individual income tax withholding, the Order extends semimonthly payments originally due September 10 and 25 and monthly payments originally due September 15.

What does “individual income tax withholding” mean?

Order 2020-04 only extends an affected employer's due date for remitting withheld income taxes to the Department. If an affected employer has a withholding remittance due date mentioned above, that due date is extended until October 31, 2020. The Order does not extend or defer the requirement to actually withhold income tax from employees’ wages. Employers are still required to withhold Iowa income tax from wages and other income as required under Iowa law. The Order also does not extend any due date for making estimated income tax payments or other income tax payments.

What kind of business is eligible for the extension?

Whether a business qualifies for the tax payment extension depends on whether the business is required to close per the Governor's Proclamation. Order 2020-04 applies to a business that is a bar or other alcohol establishment in Black Hawk, Dallas, Johnson, Linn, Polk, or Story Counties ordered to close to the general public pursuant to the Governor’s August 27, 2020 Proclamation. Please contact the Department of Inspections and Appeals (dia.iowa.gov/about/novel-coronavirus-covid-19, 515-281-7102) or the Alcoholic Beverages Division (abd.iowa.gov/covid-19-updates, 515-281-7400) for information about whether your business is impacted by the Governor’s Proclamation.

The Order’s payment extension does not apply to an establishment that is not required to be closed even if certain premises within the establishment must close as described in Section one, Paragraph A, subparagraph (4) of the Proclamation, and does not apply to a restaurant that is eligible to remain open under the requirements outlined in Section two, Paragraph B of the Proclamation. For example, a hotel with a bar in its lobby in Polk County was not ordered to cease operating its hotel business though it was ordered to close its bar, so the hotel is not eligible for the extension.

How do I take advantage of the extension? Do I need to apply or register?

A business that qualifies for the extension in accordance with Order 2020-04 and the Governor’s August 27, 2020 Proclamation does not need to apply or register. The business should submit a payment of $0.00 through eFile & Pay by the original due date for the payments that have been extended as mentioned above. The business should then make its payment by October 31 for the tax that was due to avoid incurring penalty and interest.

I operate several businesses at different locations but under one withholding tax permit. One or more of my businesses under my withholding tax permit was required to close under the Governor’s Proclamation, but my other business locations were not required to close. How does the extension affect my withholding payment due for all locations associated with my withholding tax permit?

As long as one business operated by a business owner with a single withholding tax permit was ordered to close, the entire withholding tax permit is eligible for the extension.