Next Covid Bill Would Provide a Tax Waiver on Up to $10,200 of Unemployment Insurance Benefits. Here’s What You Need to Know
Many Americans, and their accountants, got a lucky break — they now have an extra month to file 2020 taxes.
The Internal Revenue Service and Treasury Department extended the filing deadline for individuals to May 17 from April 15.
The move came after calls increased to extend the tax season, which started later than usual to accommodate the third round of stimulus payments, which the IRS distributes.
This year through March 12, the IRS has received more than 66 million individual income tax returns and processed more than 58 million, according to the agency. They've also sent out more than 42.5 million refunds, most of which have been direct deposited into taxpayer bank accounts. The average refund so far is $2,967.
Get top local stories in DFW delivered to you every morning. >Sign up for NBC DFW's News Headlines newsletter.
More from Invest in You:
Suze Orman: Don't invest your stimulus checks. Here's what to do
Women are more financially stressed. Here's how to overcome it
Women lag behind men in saving for retirement. Covid made it worse
Filing taxes on time is extremely important for many this year. It's the only way to get a refund if you are owed one. It's also how many Americans can claim previous stimulus payments they were eligible for but didn't receive.
The pandemic has complicated this year's filing process, and the $1.9 trillion American Rescue Plan signed into law in early March made changes that effect tax filing in the middle of the season.
Money Report
"This is obviously something very, very different this year than anything any of us have ever dealt with before," said Adam Markowitz, an enrolled agent with Howard L Markowitz PA CPA in Leesburg, Florida.
Here are a few things to check before you file.
Stimulus payments
If you had a drop in income in 2020 that would have made you eligible for any previous stimulus payments, or had an event such as having a baby that changed how much you should have gotten, you need to file a tax return and claim the recovery rebate credit to get that money back.
If you became eligible for the latest $1,400 payment in the American Rescue Plan, you also need to file your 2020 tax return so that the IRS has your updated information and can send you a direct deposit, paper check or debit card.
While this is the only way to get the payment, you don't necessarily need to rush to file if you aren't yet ready — the IRS said it would look at both 2019 and 2020 tax returns and top up people who became eligible for checks or would have gotten more based on 2020 returns.
Unemployment income
If you got unemployment insurance benefits in 2020, the American Rescue Plan made changes to what is considered taxable income. Now, the first $10,200 of those benefits — or $20,400 for a couple filing jointly, when both partners got unemployment — is not taxable for those who had adjusted gross income less than $150,000 in 2020.
That will save millions of Americans from a surprise tax bill during a tough time. The IRS has released a worksheet for paper filers to claim the tax break, and is working with the tax software industry to update online systems, meaning taxpayers should make sure they have the correct forms before they file.
This might put some in a difficult situation, especially if they need to claim extra stimulus payments or are waiting on their tax refund.
In addition, for those that had unemployment income in 2020 and already filed and paid taxes that they no longer owe, the IRS said no further action is needed. The agency plans to automatically process refunds for these individuals.
Now there's more time to file
To be sure, not all taxpayers are subject to the new May 17 deadline. Those who make estimated tax payments still have a first-quarter deadline of April 15 to send in the money.
And, the new date only applies to federal taxes. States set their own deadlines and may not extend their seasons inline with the federal government.
Further, the IRS didn't push back the extension deadline — if someone needs even more time to file their taxes, they must submit a Form 4868, which gives them until Oct. 15 to submit their 2020 returns. Any taxes owed the IRS are still due May 17, however, and paying them later may result in penalties and interest added.
This year of all years, experts recommend that taxpayers get professional help filing, especially if they had any situations such as unemployment income that would add complexity to their return.
"It's a bad year to try to do taxes on your own because you need to be with somebody who knows exactly what they're doing," Markowitz said.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
CHECK OUT: Single mom earns $10,000/month on Outschool: 'I would have never been able to make as much money as a regular teacher' via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
