Episode 38 Tax Drama

Hi everyone and welcome to tax season. A few days ago, the Internal Revenue Service announced that the federal income tax filing due date for individual 2020 returns and payment of income tax has been automatically extended from April 15 to May 17, 2021.

You get an extra month to file and pay your federal income tax. They are now both due on May 15. But this does NOT mean that your State income tax filing deadline is automatically extended (if you’re state has an income tax). Some states already have deadlines later than May 17, and MAY not be affected. The rest of the states are deciding what to do and have been making announcements. California, Virginia, North and South Carolina, are among the states that have already extended their deadlines to May 17th and more are making the decision. Check with your state for the latest specifics. The states I mentioned have also said the deadline to pay the state income tax was also extended, but don’t assume that is true for all states. Double check.

In another late minute change, if you received unemployment income in 2020 and your AGI was below $150,000 , you won’t pay federal income tax on the first $10,200 of unemployment you received. If this affects you, but you have already filed your 2020 tax return, do not file an amended return just for that. The IRS put out guidance that they will re-figure your taxes using the excluded unemployment amount and adjust your account accordingly. The IRS will send any refund amount directly to you.

If this affects you, you haven’t filed yet, and you live in a state with a state income tax, may want to wait a few days or a week. Tax preparation software is rapidly catching up with the states’ changes as they are announced. But we noticed an anomaly on Saturday in the in software we use where the fix for the federal returns, inadvertently caused an error in the calculation of the state return. If you are doing your own tax prep, give the software a bit of time to make the changes and be sure to update it the software before you send in your electronic return. If you use a tax preparer they should be on top of this already.

Should you wait until May 17 to file? if you don’t have a compelling reason to put it off and you are expecting a refund filing sooner will mean you get your refund faster.

Even with the extensions to file your federal tax return, will you be unable to pay your taxes on time? FILE anyway. Remember the penalty for failure to PAY your taxes is 0.5% per month plus interest. The penalty for failure to FILE by the extended deadline is 5% per month. Yes the penalty for not filing on time is 10 times more than the penalty for not paying your on time.

Do you have special circumstances and you can’t file on time? No problem, before the new May 15 deadline, file for an extension with IRS FORM 4868. Individual taxpayers can request a penalty free-extension before the filing deadline and then actually file your return by October 15. But understand the deadline to pay your taxes will not be extended past the May 17. And again if your state has an income tax, check with your state for any special rules or extensions.

One special note, especially for our listeners who pay quarterly estimated taxes. Your 2021 estimated tax payments did NOT get an extension. If you're required to make estimated quarterly tax payments to the IRS because you are self-employed, have rental property, or have investment income or other reasons, you still need to make those payments at the normal times which is still April 15 for 1st quarter 2021 and June 15 for the second quarter payments. This is different than last year when they were extended. So remember get those estimated 1st quarter payments in by 15 April as normal.

Hope this has cleared the air a bit and we’ll speak with you next time.