Budget Blog

Disasters pose many challenges for states including the immediate response and long-term recovery. Disaster-related tax extensions provide relief for impacted taxpayers, but may present additional hurdles for revenue forecasters and cash-strapped states. To be resilient in the face of increasing disasters, policymakers need to be aware of, and prepared for, potential disruptions to revenue collections, including an expansion of disasters qualifying for extensions. 

When does the IRS issue disaster-related federal tax extensions?

Following certain disasters, the Internal Revenue Service (IRS) will issue disaster-related tax extensions as a form of taxpayer relief. Steps in the process leading to a tax extension include preliminary damage assessments by both state/local governments and the Federal Emergency Management Agency (FEMA), a request for a disaster declaration by a governor or tribal leader, FEMA identifying areas covered for relief, and the President signing a major disaster or emergency declaration.  Recent legislation has modified disasters eligible for tax extensions, as well as the length of extensions. In July, President Trump signed the Filing Relief for Natural Disasters Act, which authorizes the IRS to postpone federal tax deadlines for taxpayers upon request by a governor when a state disaster has been declared. The bill also increased the automatic extension of federal tax deadlines for certain taxpayers to 120 days from 60 days, while extensions up to one year remain permissible.

How do federal tax extensions impact states?

State corporate and personal income tax filings conform to, at some level, the federal tax code. This includes filing dates, particularly for states that automatically conform to the federal tax code. States with conformity requiring action by the governor, legislature, or other tax body may choose to extend filing dates to provide relief to taxpayers and an easier tax filing experience.

What challenges do extension of state tax filings pose?

The timing and length of the tax extensions can pose budgetary challenges for states that conform to the IRS deadline. As highlighted in a report the National Academy of Public Administration (NAPA) produced for NASBO, these challenges can include delayed revenue collections, difficulty in forecasting future revenue due to the lack of timely receipts and reporting, and reduced fiscal capacity to help affected communities. Challenges associated with delayed revenue collections can be exacerbated when a tax extension spans two separate fiscal years as states are legally required to balance their budgets and must take steps to address a revenue shortfall. In addition, revenue estimates rely heavily on timely data from income tax filings, and a lengthy extension can make it difficult to project tax collections and set spending targets for the upcoming budget cycle. In 2025 alone, eleven states saw tax deadline extensions that spanned fiscal 2025 to fiscal 2026, as shown in the table below. In addition, in six of the eleven states the extension was announced before the April 15^th tax deadline; April is the largest month for tax collections for income tax states due to the federal tax filing deadline.

Tax Extensions from Fiscal 2025 to Fiscal 2026

*North Carolina was further extended from May 1, 2025, to September 25, 2025, on April 17, 2025.
** Texas had two separate declarations in 2025; its fiscal year begins on September 1.

As noted by NAPA, the expansion of IRS disaster-related tax extensions, along with the increasing frequency and severity of natural disasters, has led to more frequent extensions and a greater impact on states. In addition, the absence of clear criteria for determining the length of initial and supplemental extensions can make budget planning difficult.

Nevertheless, states need to be informed of when they should expect filing extensions and have a plan for handling conforming to extended filing deadlines, disruptions to cash flow, and uncertainty due to a lack of monthly tax collection data based on their budget calendars and state laws.