Why Some Americans Should Wait To File Their Taxes For 2020
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Tax professionals usually advise people to file their taxes ASAP – this is the fastest way to get a refund and know if you owe the IRS. This can also reduce the risk of fraud.
Then the pandemic hit.
Last year, there were extensive lockdowns in the middle of the tax return season to contain the spread of Covid-19. This resulted in the filing deadline being extended to July 15, 2020, the more normal time for lawmakers to add tax changes to the American bailout plan signed by President Joe Biden on March 11.
The bill made changes almost a month after the IRS began accepting returns on February 12, adding another level of complication. That means that for many taxpayers there is a reason to postpone filing – even if it means delaying your refund.
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“It’s busy, so there might be reasons to procrastinate,” said Richard Auxier, senior policy associate at the Urban-Brookings Tax Policy Center, adding that if you get something wrong, you’ll likely have to top up.
If you were one of the million Americans who had unemployment income in 2020, you may want to withhold filing your taxes or, if you’ve already done so, changing your tax return.
The US bailout plan stipulated that the first $ 10,200 – or $ 20,400 for a married couple filing an application together – would be tax-free for those with an adjusted gross income of less than $ 150,000.
The IRS said Friday that those with unemployment income in 2020 who have already filed an application should withhold changing their return as the agency will provide further guidance.
At the same time, she announced new instructions for those who had unemployment income in 2020 and had not yet submitted. For paper binders, the IRS provides the Unemployment Compensation Exclusion Worksheet and is also working with the software industry to update forms for those filing electronically.
These forms will help taxpayers find the right way to notify the IRS to receive the exclusion, which will be reported separately from unemployment income.
Paper filers need access to the form, and those who archive electronically need to make sure that the program they are using has the documents. It may take the industry some time to implement the new forms.
“I wouldn’t hit send on a return now until we get clarification as I have no basis at this point to withdraw it,” said Edward Renn, partner at Withers law firm.
If your income increased in 2020
Another reason to wait for your 2020 taxes to be filed is because your income increased in 2020 so you won’t be eligible for a stimulus review or lower the amount you could get from the federal government.
The IRS announced on Friday that it will first review the 2019 returns for eligibility for economic impact payments and then move on to the 2020 return when it has been submitted and processed.
I would not click “Submit” when I returned
Partner, Withers Law Firm
That said, if you were eligible in 2019, you’d want to wait until you file the 2020 tax until you’ve received the stimulus payment – either by direct deposit, a check, or a debit card. Then you could submit your return for 2020. The reason for this? The IRS has stated that even if they see that the updated rate of return, they will not reclaim the stimulus payment, they will not be eligible for the same amount.
Deadline is approaching
Of course, filing is the only way to get a refund when you owe one, and many people this year may be eagerly awaiting the windfall.
In general, filing earlier is the best way to ensure you get the refund you owe as soon as possible. This year, however, there may be delays for many taxpayers as the IRS now deals with both the tax filing season and sending out a third round of stimulus funds.
And while the April 15th deadline for filing taxes is fast approaching, it is possible to buy more time if needed. You can apply for an extension at any time. The caveat is that if you owe money to the IRS, it is still due on April 15th and you could see a penalty if you fail to pay by then.
Because of the added complexity this year, it may be worth seeking professional help.
“My advice this year, of all places, is not to do this alone,” said Adam Markowitz, a registered agent at Howard L. Markowitz, PA CPA in Leesburg, Florida. “People would be stunned to know how much money would be left on the table.”
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