Did a bit of poking around and it seems that the apps provided by Apple (Calendar, Calculator, Activity Monitor, etc) are greyed out and cannot be tagged. So maybe that's the limitation?
Ashwin, I'm in Catalina, too, but I don't have any button in Finder. Right-click still shows the option as before. Where is this button I'm missing? There is a "Edit Tags" in the optional items for the toolbar, is that what you mean?