April 15 is a day on the calendar that can come — and go — in 2021 for many taxpayers, but not all.
This tax season, the traditional federal income tax deadline for individual returns shifts from April 15 until May 17. Ditto for the Michigan income tax deadline.
Of course, the extension for filing a return — granted by the IRS due to the ongoing pandemic — doesn’t mean we can all stop worrying about taxes completely.
April 15 remains a key deadline for some freelance and gig workers, small business owners and some people with substantial earnings from interest and dividends, rent and alimony.
Even though federal and state tax returns are due May 17, many people still need to pay their first-quarter 2021 estimated tax payments that are still due April 15, said George Smith, a CPA with Andrews Hooper Pavlik in Southfield.
That’s true for first-quarter estimated payments for the state of Michigan, too, as those payments for tax year 2021 remain due on April 15.
And frankly, it can be a little tough for small business owners and others to calculate an estimated tax payment for the first quarter of this year if they aren’t looking at a completed 2020 tax return.
CPAs and other tax professionals had hoped that the Internal Revenue Service would extend the deadline for those estimated payments to May 17.
IRS Commissioner Charles Rettig has maintained that the tax filing deadline extension is designed to accommodate the needs of the “most vulnerable individuals” and those struggling to gather their tax information.
But he has argued that many wealthy taxpayers don’t make estimated payments as they should and then invest the money to their advantage. “And we’re not going to give them a break of interest and penalties to do so,” Retting told a congressional hearing in March.
Advocates for the extension noted that many struggling small businesses would face great difficulty meeting an April 15 deadline. Many pay their quarterly estimated taxes based on their returns from the previous year. So if these businesses do not file until May 17, 2021, they would not know what their estimated payment liability would be as of April 15.
Seems to make sense. But the extension didn’t happen.
As a result, some taxpayers who make estimated payments will be filing their income tax returns by April 15 if accurate information is readily available.
Others will take a small hit of a penalty and ignore the April 15 estimated tax due date. They plan to pay estimated taxes when the tax return is completed and filed.
Smith said he has some clients who will delay making their first quarterly payments and take a relatively small estimated tax penalty in order to have accurate information on hand when they make their quarterly estimated payment roughly one month later.
In short, it’s a mess.
Jan Lewis, a member of the tax executive committee of the American Institute of CPAs, called the unwillingness by the IRS to extend the first-quarter payment deadline a “classic example of the IRS not understanding that for small businesses, this may result in unnecessary penalties and a burden on the self-employed.”
She said a tax client who pays estimated taxes — as many small business owners and self-employed taxpayers do — remains at a disadvantage when there’s an extension for filing a 2020 return but no break on when quarterly estimated payments are due.
“For practitioners to run the numbers and make calculations for April 15 and then come back and finish the return by May 17 means that we would have to bill the client for that estimate preparation, and in all likelihood, our charge for that could exceed the penalty they would pay for that one-month delay,” she said.
She gave an example: “At the IRS underpayment rate of 3%, the maximum penalty will be .0025 for a month. So a $10,000 quarterly estimate that is due on April 15 but is not paid until May 17 would cost a taxpayer $25 in penalty.”
The penalty doesn’t apply if the taxpayer pays in quarterly estimates based on the safe harbor of what they owed in taxes for the prior year tax.
“But this year with the first-quarter estimated tax payment actually due before the due date of the (2020) return, this has been problematic,” she said.
Here are some other not-so-last-minute tax tips to consider:
Don’t wait if you’re owed a tax refund
If you have all your paperwork in order, tax experts recommend that you don’t wait another month to file your tax return.
By delaying filing, you’re also pushing back how soon you might get a tax refund.
The IRS has received 93.2 million individual tax returns through April 2, down 4.3% from the same year-to-date period in 2020.
The IRS processed 83.7 million individual tax returns through April 2, down 9.5% from a year ago.
So far, the IRS has issued 62.3 million income tax refunds — down 15.9% from a year ago. The average refund of those issued through April 2 was $2,893.
The IRS did not start the tax season and begin processing tax returns until Feb. 12 — a bit more than a two-week delay from last year.
Some tax refund delays might be attributed to the extra time that the IRS needs to correct mistakes that are being made when people claim the Recovery Rebate Credit. Other factors could be at play, too.
Some people who lost jobs in 2020 could see even more money than their initial income tax refund, too.
The IRS said in late March that it would take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent tax break for jobless benefits was put into place as part of the American Rescue Plan.
The first special refund payouts will likely be made in May, and they will continue into the summer.
More:Receive jobless benefits in 2020? IRS to send tax refund payouts to some in May
Don’t forget about stimulus checks
Make sure that you are providing your tax preparer with a correct number for the amount of money that you received for two stimulus payments, the first that rolled out starting last April and the second that rolled out in January.
“One of the biggest challenges this year is accurately reporting to the IRS the stimulus amounts received by taxpayers,” said Antonio Brown, a CPA in Flint and a member of the Michigan Association of CPAs.
“We need that information. If they did not receive both stimulus payments or only received one, we need to know it because the Recovery Rebate Credit is the way to receive the stimulus money that they didn’t get,” Brown said.
If a child was born or adopted into your family in 2020, you could end up with an extra stimulus payment for your new dependent, for example.
The first stimulus program offered up to an extra $500 per qualifying dependent. The second stimulus program had a $600 cap. So some parents of 2020 newborns could receive up to $1,100 extra now if they did not receive that money earlier.
The first and second Economic Impact Payments were based on information included on your most recent tax return — which might have been the 2018 or 2019 returns.
“Some will want to file even if it is just to claim the credit,” Brown said.
The third stimulus program — which began rolling out money in March and is ongoing —offers up to $1,200 for qualifying dependents.
“Even people incarcerated, who work inside the correction facilities, can claim the recovery rebate credit so long as they file a tax return, report their wages earned, and use either direct deposit or an address other than the correction facility,” Brown said.
The IRS is correcting many mistakes that are being made after people plug in the wrong number for the Recovery Rebate Credit on their federal income tax returns. The IRS will correct the errors and issue a refund after making the adjustment.
The IRS said in early April that the agency had already issued 2.5 million letters relating to issues with the Recovery Rebate Credit. That amounted to 10.4% of almost 24 million individual e-filed tax returns received that claimed this credit.
The IRS will not figure out the Recovery Rebate Credit for you. You need to claim it when you file a 1040 return.
More:Too many making a new stimulus mistake on 2020 tax returns
More:Stop! Don’t do your taxes until you dig up this number
Kathy Pickering, chief tax officer for H&R Block, noted that the 2020 stimulus payments are not taxable income, so you’re not reporting that money as income on your tax return.
On the plus side, you’re not paying back stimulus money that you received last year if your stimulus payments were too high if your income increased in 2020, compared with 2019. Or if your kids turned 17 in 2020 and no longer qualified for the first two stimulus programs.
“You do not have to repay any overpayments and your refund won’t be reduced,” she said.
When it comes to the third stimulus payments that began being issued in March, she noted that some taxpayers could be seeing a “plus up” payment of additional stimulus money, depending on when a 2020 federal income tax return was processed.
“For the ‘plus up” payment, the IRS will re-determine your eligibility for an additional payment after you file your 2020 tax return,” Pickering said.
“If you are due more, you’ll receive another payment from the IRS for the difference.”
More stimulus news: “When you file taxes next year, you could receive an additional payment on your tax return with the 2021 Recovery Rebate Credit if in 2021 you have a child, your income drops significantly, or you file for the first time,” Pickering said.
ContactSusan Tompor via stompor@freepress.com. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.
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