What Is a Tax Year?

A tax year is the 12-month calendar year covered by a tax return. In the U.S., the tax year for individuals runs from Jan. 1 to Dec. 31 and includes taxes owed on earnings during that period.

Taxes withheld or owed for earnings during the calendar year 2020, for example, would be included on the tax return that’s due to be sent by most taxpayers to the Internal Revenue Service (IRS) on Thursday, April 15, 2021. 

As a notable exception, if you live in Texas, your deadline for filing your 2020 federal taxes and paying any tax due has been moved to June 15, 2021, due to the snowstorm-related federal disaster declaration. If you don't live in Texas but were affected by the storm, you may still be eligible for the delayed deadline.

Key Takeaways

  • A tax year refers to the 12-month period that a tax return covers.
  • Individuals are subject to a calendar tax year beginning Jan. 1 and ending Dec. 31.
  • Tax returns in the U.S. are usually due on April 15 of the following year covering the calendar year period. 
  • Business taxes may be filed using a calendar year or a fiscal year.

Understanding a Tax Year

A tax year is an annual accounting period for paying or withholding taxes, keeping records, and reporting income and expenses.

Wage-earning people pay taxes throughout the calendar tax year. Early in the following year, usually on April 15, they report the wages they paid to the Internal Revenue Service (IRS) and either pay any shortfall in their taxes due or request a refund of taxes overpaid.

Self-employed people and small business owners usually file quarterly to report their incomes and pay an estimate of the taxes they owe for that quarter. They also file annual documents to square the accounts and either pay the difference or request a refund.

Businesses can use either the calendar year or the fiscal year (FY) for the start and end date of their tax year for income reporting.

A tax year that follows the calendar year refers to the 12 consecutive months beginning January 1 and ending December 31. The fiscal year is any 12 consecutive month period that ends on any day of any month, except the last day of December. When a company’s tax year is shorter than 12 months, it is simply referred to as a short tax year.

While the IRS allows most businesses to use either a calendar year or the firm’s fiscal year, there are exceptions. Taxpayers who file using the calendar tax year and later start a sole proprietorship, become a partner in a partnership, or become a shareholder in an S corporation must continue to file using the calendar year unless they obtain IRS approval to change it.

Types of Tax Years

In addition to calendar and fiscal tax years, there are also state tax years and, as mentioned above, short tax years.

State tax years

Every state handles taxation independent of the federal system, but most impose income taxes and use April 15 as their required filing date. Virginia is an exception, with a filing deadline of May 1.

Several states do not have income taxes. New Hampshire, which has no income or sales tax, compensates with relatively high property taxes. The New Hampshire property tax year runs from April 1 to March 31 for all property owners.

Short tax years

A short tax year is a fiscal or calendar tax year that is less than 12 months. Short tax years occur either when a business is started or a business’s accounting period changes. Short tax years usually occur only for businesses. Generally, individual taxpayers must file on a calendar-year basis and do not have the option of choosing a fiscal year.

A short tax year can also occur when a business decides to change its taxable year, a change that requires the approval of the IRS after the entity files Form 1128. In this case, the short tax period begins on the first day after the close of the old tax year and ends on the day before the first day of the new tax year.

Let's say a business that reports income from June to June every year decides to change its fiscal year to begin in October. As a result, that business must report a short tax year from June to October.

If the April 15 deadline to file taxes falls on a weekend or a holiday, it is moved to the next business day.

History of the Tax Year

Individuals generally use a Dec. 31 tax year, with an annual return due on April 15 of the following year, but that wasn't always the case. When the 16th Amendment was passed in 1913, granting taxation authority to the federal government, Congress designated March 1 as tax filing day. This date was moved progressively later to where it is today, on April 15.

When the deadline was changed in 1954, the IRS claimed that it helped to spread out the workload due to so many returns arriving at once. Whatever the case, the movement to April has coincided with an increase in the pool of eligible taxpayers. When the 16th Amendment was passed, a small number of very wealthy individuals were expected to pay federal tax. The pool of taxpayers has grown significantly since then.