The extra time will help paid and volunteer tax preparers, especially the IRS’s Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs, which offer free tax help.
This was the right decision for individual taxpayers, said Erin M. Collins of the independent Taxpayer Advocate Service, an organization within the IRS that helps taxpayers resolve issues with the agency.
“The additional month will provide taxpayers with more time to avail themselves of the benefits Congress provided in recent tax-law changes in December and earlier this month,” Collins said. “The extra month will also provide additional time for taxpayers who self-prepare their returns and preparers to get up to speed on the changes and ensure they claim the benefits for which they’re eligible. For individual taxpayers who owe tax, the IRS is providing an additional month for payment as well.”
As with anything concerning taxes, be sure you know the pros and cons of waiting to file. Here are answers to some questions you may have about the tax deadline extension.
What happens when the IRS extends the tax deadline?
At this point, the May 17 deadline applies to individuals (and couples), including those who pay self-employment tax and file a 1040 and 1040-SR, the IRS said.
Instead of having to file and pay taxes by April 15, taxpayers now get an extra 32 days. No interest will be charged because of the delay, nor will taxpayers be hit with penalties for filing or paying late. If you are owed a refund, you are not penalized for filing late or failing to file a tax return.
The IRS has also extended the tax deadline for victims of winter storms in Texas, Louisiana and Oklahoma. Residents in those states have until June 15 to file various individual and business tax returns and make tax payments.
Will the extension delay my tax refund or stimulus payment?
The IRS will continue to process returns and issue refunds and stimulus payments. The filing extension is intended to give filers more time to get their returns done or pay taxes they owe.
For people who file electronically and elect to have their refund direct-deposited into their bank account, most refunds are being issued within 21 days, according to the IRS.
So the sooner you file, the faster you are able to get in line to get a refund or stimulus payment.
The American Rescue Plan, signed into law last week, provides for stimulus payments of up to $1,400 for individuals and $2,800 for couples filing a joint return.
I haven’t received a stimulus payment. Should I wait to file?
If you have all the documents you need, you should not wait to file your 2020 return until May 17, said Curtis Campbell, president of TaxAct, one of the leading digital tax-preparation services.
You should file as soon as possible, especially if the IRS does not have a 2020 or 2019 return on file for you. The IRS is pulling information from those returns to make the third-round stimulus payments.
Additionally, if you haven’t received your stimulus payment for the first or second round of coronavirus-related relief, you can apply for those funds on the 2020 return.
“If you think about how your stimulus payment is delivered, you’ve got to have a connection with the IRS,” Campbell said. “The IRS has got to have your latest and greatest information, most importantly your banking information. That is the way that the funds are going to be delivered the fastest to you as a consumer.”
Last year, billions of dollars of refunds were received much later than necessary by filers who delayed submitting their returns once the IRS moved the filing deadline to July 15, Campbell said industry data showed.
Who will the extension help?
The extension will allow for time to get the word out to low-income communities about the stimulus payments and help them get free help in filing their taxes, said Jennifer Burdick, an attorney with Community Legal Services of Philadelphia.
“The stakes have never been higher for people to file taxes, since filing taxes is the only way people can recover missing stimulus payments right now,” Burdick said. “We’re thrilled that the IRS has extended the tax filing deadline until May 17. A lot of families don’t file taxes because their incomes are low enough that they aren’t required to do so. These are the same families that need the stimulus payments most.”
Does the tax-deadline postponement also apply to quarterly estimated taxes?
The IRS has not extended the deadline to pay estimated taxes. That due date for the first quarter of 2021 is still April 15.
“Gig workers or self-employed, who are not incorporated, still have until May 17 to file and pay for 2020,” IRS spokesman Eric Smith said.
Individuals — including sole proprietors, partners and S-corporation shareholders — generally have to make estimated tax payments if they expect to owe $1,000 or more when their return is filed, according to the IRS.
If you don’t pay enough tax, you may be charged a penalty. You also may be charged a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return, the IRS points out.
“The announcement is far too selective in who is receiving relief,” Barry Melancon, AICPA’s president and chief executive, said in a statement. “Failure to include estimated payments nullifies any benefit of a postponement since the tax return work has to be done to calculate estimated payments.”
More than 9.5 million individual returns filed for the 2018 tax year included estimated payments, according to the AICPA.
During a House Ways and Means Committee hearing on Thursday, IRS Commissioner Charles Rettig was questioned about the decision not to delay the payment of estimated taxes due on April 15.
There is a large contingent of wealthy individuals who intentionally don’t make their estimated payments and instead invest the money, Rettig said during the hearing. “We are not going to give them a break on penalties and interest to do so,” Rettig said.
If gig workers or small-business owners are having trouble making their estimated payments, they should contact the IRS, he said.
Does the extension apply to my state tax return?
The federal tax filing deadline extension only applies to individual federal income-tax returns. State filing and payment deadlines vary and are not always the same as the federal filing deadline.
However, many states may also extend deadlines to match the federal change. Maryland has extended its filing deadline to July 15 because coronavirus-related legislation affected 2020 tax filings.
What if I still need more time to file?
If you need more time, file IRS Form 4868 by May 17 to obtain an automatic extension to Oct. 15. You don’t need to justify why you will miss the tax deadline.
However, it’s important that you realize that an extension does not mean you can postpone paying your taxes. Filing an extension only gives you extra time to file your federal return.
The failure-to-file penalty is usually 5 percent of the tax owed for each month that your return is late, up to a maximum of 25 percent. There’s also a penalty for failing to pay your entire tax bill on time, plus interest.
If you’re unable to pay your debt in full, pay as much as you can and ask the IRS for a payment plan, something you can easily do at irs.gov/payments. As tempting as it may sound, stay away from companies offering tax debt settlement. Such services are costly and often don’t deliver promised relief.