This year the IRS moved the deadline for filing the 2020 federal income tax returns from April 15 to May 17, 2021. This change comes after lawmakers, tax professionals, and others put intense pressure on the agency to “help taxpayers navigate the unusual circumstances related to the pandemic” by giving them more time to file their 2020 federal income tax returns. The IRS issued Notice 2021-21 with details on the tax deadlines that have been postponed until May 17. To realize this change, taxpayers do not have to file an extension or any sort of request to file by May 17 for their federal income tax returns – the extension is automatic.
The IRS Was Already Behind
The delay was preceded by the IRS starting the tax season a bit later this year, giving taxpayers fewer days to prepare and file their taxes than in previous years. This came about because the IRS is busy processing returns and sending out refunds, while also sending out stimulus payments. The IRS is also dealing with claims for missing stimulus payments this year, which are linked to taxes. The extension gives the agency, as well as individuals, more time to prepare and process tax forms in what’s become an unusually busy tax season.
The American Rescue Plan Act
The later deadline also gives the IRS more time to adjust its computer systems and forms to account for the tax changes in the American Rescue Plan Act, which passed in early March. There are two major parts of the ARPA that the IRS needs to address: the Child Tax Credit, which is expected to start in July for eligible families — assuming they have qualifying dependents and waiving federal income taxes on the first $10,200 of unemployment benefits received in 2020 by middle- and lower-income taxpayers.
Making 2020 Contributions
With this change, the IRS is now allowing individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs) until May 17. Also automatically postponed until May 17 is the reporting and payment of the 10 percent additional tax on amounts includible in gross income from 2020 distributions from IRAs or workplace-based retirement plans. Notice 2021-21 also postpones the due date for Form 5498 series returns related to these accounts to June 30, 2021.
Claiming Tax Refunds
The normal April 15 deadline to claim a refund has also been extended to May 17. The law provides a three-year window of opportunity to claim a refund, so unclaimed refunds for the 2017 Federal income tax returns have been extended to May 17, 2021. If taxpayers don’t file a return within three years, the money becomes property of the U.S. Treasury.
Paying Federal Income Taxes
Taxpayers can delay payment of federal income taxes for the 2020 tax year to May 17 without penalties and interest, regardless of the amount owed. This delay applies to people who pay self-employment taxes, too. Penalties, interest, and additions to tax will begin to accrue on any remaining unpaid balances after May 17.
Estimated Tax Payments
The extended due date, however, does not apply to estimated tax payments. These payments are still due on April 15. Income taxes must be paid during the year as they are received – either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony, or rental income. For most people though, they automatically have taxes withheld from their paychecks and submitted to the IRS by their employer.
October 15th Extension
If taxpayers need additional time to file after the May 17 deadline, they can request a filing extension until October 15, 2021, by filing Form 4868. This will not extend the time to pay federal taxes; these still need to be paid on May 17.
The new extension doesn’t change estimated tax payments, however. The IRS said the May 17 deadline does not apply to those who make estimated payments, which are still due on April 15.
Impact On Foreign Trusts And Estates
Foreign trusts and estates with federal income tax filing or payment obligations, who file Form 1040-NR, now have until May 17.
Trusts And Gift Tax Returns
The extension, however, does not change the April 15, 2021 deadline for trust and gift tax returns.
Third Stimulus Checks
Since stimulus payments and tax returns are interlocked this year, pushing back the tax date could affect the third stimulus check.
The IRS uses information on 2020 tax returns if processed when it determines the amount for each third stimulus check. Specifically, the IRS looks at the AGI, or adjusted gross income, on the 2020 form to help figure out payments, using a new stimulus check formula. But the tax agency will use 2019 returns if 2020 taxes haven’t been accepted by the time a payment is sent. This could work to a taxpayer’s advantage if their income from 2019 was lower than their income from 2020. However, if the 2020 tax return would bring a larger third stimulus check, like if they have more dependents, then a taxpayer would want to file as soon as possible so that the IRS processes 2020 taxes before releasing any third stimulus checks.
Postponing the tax deadline gives taxpayers more time to file, but again, it means they may have to wait longer to receive any missing stimulus money, and if there’s a difference between 2019 and 2020 taxes, then they will have to wait until tax season 2021 to claim it.
Missing Stimulus Money
Federal tax returns this year are also how taxpayers can recover any money the IRS owes them from the first two stimulus checks. If they didn’t get a payment or got less than they were eligible to receive, then taxpayers can claim that money on their federal tax forms as a rebate credit when they file this year. That goes for nonfilers, too — those who aren’t normally required to file a tax return. If they wait to file taxes closer to a new, later due date, then they’re also waiting to receive any owed money, which will be bundled into their tax return.
State Tax Returns
Most states have followed the IRS and moved the deadline for income tax returns to May 17, and Rhode Island and Massachusetts are no exception. Both states have also extended until May 17 the deadline to make payments for the 2020 tax year.
Business Tax Filing Deadlines
This year, individual taxpayers, including sole proprietors and single-owner LLCs, who normally have to file their tax returns by April 15 will also have until May 17, 2021 to file their 2020 taxes. Other businesses, including most S corporations and partnerships, have a tax filing deadline of March 15. This is unchanged since the deadline had already passed by the time the IRS moved the filing date. The April 15 deadline for C corporations is also unchanged.
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