This is something I’ve never said before: Now that Independence Day is behind us, tax day is fast approaching.
Because of the coronavirus pandemic, the Treasury Department postponed the traditional April 15 federal tax filing deadline until July 15. And this time, there’s no wiggle room. Last month, the Internal Revenue Service announced that there would not be another blanket filing delay.
So if you haven’t filed your return yet — or if you’ve filed but haven’t yet paid the taxes you owe for 2019 — the deadline is Wednesday.
“It’s just like April 15, but in July,” said Cindy Hockenberry, director of tax research and government relations for the National Association of Tax Professionals, a trade group.
About 142 million taxpayers had filed returns as of July 3, according to I.R.S. statistics, but the agency has struggled to process returns because of reduced staffing during the pandemic. (In addition to its usual duties, the agency sent out about 160 million stimulus payments this spring, as part of the federal pandemic aid program.) The agency had processed about 131 million returns as of July 3 — 10 percent fewer than the same time last year.
And some taxpayers are facing long delays in getting the refunds they’re owed, according to a report from Erin Collins, the new national taxpayer advocate, who represents filers.
Some returns were mistakenly flagged by tools aimed at detecting fraud. Some fraud filters are wrong more than half the time, the report said. Once a return is flagged, the I.R.S. often asks filers to mail extra documents — but the agency hasn’t opened or processed all the mailings, delaying the refunds. The report said the delays “notably” affected people who claimed the earned-income tax credit or the additional child tax credit, both of which mostly help low- and moderate-income filers.
Many families rely on the refunds to pay bills. The average refund as of June 26 was about $2,800.
While most people file tax returns electronically, people who filed on paper and are expecting refunds “may be in for a long wait,” the report said. As of May 16, the agency had an estimated backlog of 4.7 million paper returns.
“They have a backlog you wouldn’t believe,” Ms. Hockenberry said.
Working through the paper returns is a “high priority” for the I.R.S., its commissioner, Charles P. Rettig, recently told the Senate Finance Committee. The agency is reducing the backlog by about one million a week.
If you’ve already filed a paper return, the I.R.S. refund website says, it will be processed in the order it was received. Its advice? Sit tight. “Do not file a second tax return or contact the I.R.S. about the status of your return,” the agency said.
A bit of good news: Because the postponed filing date is “disaster related,” the I.R.S. must pay interest on your refund, calculated from April 15 roughly until it is paid out — as long as you file your 2019 return by July 15, an agency spokesman said. Depending on the timing of the refund, the interest is 3 to 5 percent, compounded daily. Interest payments may come in a separate installment.
Also, you have until Wednesday to take steps that may help reduce your taxable income, said Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax. You can make contributions to an individual retirement account, which may be tax deductible depending on your income, or to a health savings account, if your health plan qualifies.
Here are questions and answers about tax day in July 2020:
What if I’m still not ready to file?
If, despite the extended deadline, you still aren’t prepared to file your federal return, you can get an automatic extension to file until Oct. 15 by submitting I.R.S. Form 4868. You can do it at no charge, using the I.R.S. Free File website.
But be warned: An extension to file is not an extension to pay, Ms. Hockenberry emphasized. If you owe money, you still need to calculate what you expect to owe and pay it by Wednesday, or face penalties and interest on the unpaid amount.
If you can’t pay what you owe, the I.R.S. may give you a little break: You can pay what you can and request an installment plan for the rest, although you’ll still have to pay penalties — at half the usual rate — and interest.
“The I.R.S. understands that those affected by the coronavirus may not be able to pay their balances in full by July 15,” Commissioner Rettig said in a statement.
People who are self-employed, or who didn’t have enough tax withheld from their paychecks, may also need to make estimated tax payments by Wednesday. The quarterly deadlines in April and June were also postponed, but that time is now up.
If someone owes 2019 taxes, plus two quarterly 2020 tax payments, “it could be a lot of money owed right now,” said Susan C. Allen, senior manager for tax policy and advocacy at the American Institute of Certified Public Accountants. “It’s a unique year, to say the least.”
It may also be wise to make estimated tax payments if you received unemployment benefits this year and didn’t elect to have taxes withheld, Ms. Allen said. Many people don’t know that the benefits are taxable, and could end up with a surprise bill at tax time next year.
Where can I get help with my return?
Many volunteer sites that usually help low-income or older taxpayers shut down because of the pandemic, but some have reopened; services vary by location. AARP Foundation Tax-Aide is providing modified, in-person help by appointment at limited sites; it also offers help delivered by phone or online. If you don’t have internet access, call 1-888-227-7669.
A few locations of the I.R.S.’s Volunteer Income Tax Assistance program are also open, but it’s best to call first. To search for a site near you, use the agency’s locator tool.
Are state filing deadlines also extended to July 15?
State deadlines vary. Most also extended their deadlines by three months, but some didn’t; others allowed even more time. The Tax Foundation has a state-by-state chart.
State deadlines for quarterly estimated tax payments vary as well, according to the foundation.
Do I have to pay income taxes on my economic stimulus payment?
The money, intended as a financial lifeline during the coronavirus shutdown, isn’t taxable, said Garrett Watson, a senior policy analyst at the nonprofit Tax Foundation.
For millions of Americans, the stimulus checks paid out as part of the federal pandemic aid program offered welcome relief. Most adults received up to $1,200 each, depending on their income, and qualifying children age 16 and under received an extra $500. For a family of four, that meant a payment of $3,400.
The payment was structured as an advance of a credit on your 2020 tax year return. Eligibility was based on your income from your 2019 tax return or, if you hadn’t filed when the payments went out, your 2018 return.
If your income fell in 2020 — meaning you would actually have been eligible for a larger payment — you’ll probably get the rest of the credit when you file your tax return for 2020 next year, said April Walker, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants.
If your income rises in 2020 — meaning, your stimulus check should have been smaller — you won’t have to repay any overpayment. “There is no provision in the law requiring repayment,” the I.R.S. website says. It also says the payment “will not reduce your refund or increase the amount you owe” when you file your 2020 federal return.
If you received a stimulus payment, you also should have been mailed I.R.S. “Notice 1444, Your Economic Impact Payment.” Keep it with other tax documents so you can refer to it when preparing your 2020 tax return next year, experts recommend.
And take note: Unlike the stimulus payments, unemployment benefits received in 2020 — including the extra $600 a week in benefits paid through the pandemic relief program — are subject to federal, and often state, income taxes. (The $600 payments are scheduled to stop at the end of July, unless Congress acts to extend them.)
I still haven’t completed my tax return. What are my options?
The I.R.S. offers free versions of many commercial, do-it-yourself tax preparation programs through its Free File program, available to people making $69,000 or less a year. (Use the link from the I.R.S. page to be sure you are using a free version.)
People who don’t meet the income requirements can use the I.R.S.’s free “fillable forms” service, which allows online preparation and filing with minimal guidance.
Military service members can get free tax preparation and advice through the Defense Department’s MilTax program.
Because of the extended tax season, many professional tax preparers are still in full swing and may be willing to take on clients. But since the deadline is close, they may advise filing for an automatic extension, until Oct. 15, said Trish Evenstad, a director of the National Association of Enrolled Agents, a professional group for federally licensed tax professionals. (Even with an extension on filing, you must estimate what you owe and pay by July 15.)
Some online services offer tax preparation by professional advisers, for a fee. EY Tax Chat, for instance, offers services starting at about $200.
You may also be able to find help at chain tax-preparation locations, which charge varying fees. H&R Block offers remote preparation and drop-off service for those who want to keep their distance, said Kathy Pickering, chief tax officer at H&R Block.
The I.R.S. advises that filing electronically is the fastest way to get your refund. Because of staffing shortages, processing paper returns could take “several weeks” longer, the agency says.
I owe taxes. What if I can’t afford to pay?
If you can’t afford to pay your tax bill all at once, you have some options.
Some people might hold off filing their return if they know they can’t pay their tax bill, but that’s a mistake, tax professionals say. Penalties for not filing are greater than those for failing to pay, so you can quickly end up deeper in the hole.
It’s best to file your return by July 15 and pay what you can to reduce potential penalties and interest, said Ms. Evenstad, of the National Association of Enrolled Agents. Then, the I.R.S. will send a statement showing what’s owed, including the penalties and interest, and you can request a payment plan for the balance.
The I.R.S. has said it understands that many people may not be able to pay in full because of the economic effects of the coronavirus pandemic.
If you think you can pay in full within four months, the simplest solution is a short-term plan. You can apply online with no fee for setting up the plan. You can have payments automatically deducted from your bank account, or pay by phone or check.
If you need more time, request a long-term installment plan. There’s a $31 setup fee (waived for low-income filers) if you pay by automatic withdrawal; otherwise, the fee jumps to $149.
The I.R.S. says it might even make sense to borrow — using a credit card or taking out a home-equity loan — to pay your taxes, since the interest rate on the loan may be less expensive than paying penalties and interest to the I.R.S.
If you can’t see any way to pay your full bill, and it’s unlikely the I.R.S. can collect what’s owed, you can try negotiating an “offer in compromise” to reduce your tax. But this is a more complex process and should be considered a last resort, tax experts say. You’ll need to submit extensive financial records to document a financial hardship and pay a $205 application fee, plus make a significant upfront payment. This option generally calls for help from a tax professional, said Ms. Hockenberry, of the National Association of Tax Professionals.
For help finding a tax professional, search on the I.R.S. website.
The post Tax Day Deadline 2020: Questions and Answers for July 15 Extension appeared first on New York Times.