Tax filing is a little more complicated this year.
The deadline to file a 2020 individual federal return and pay any tax owed has been extended to May 17, about a month later than the typical April deadline. The Treasury Department and the Internal Revenue Service moved the date to give filers, tax preparers and the IRS itself more time to adjust to disruptions from the coronavirus pandemic.
Most states are following the extended federal deadlines, and a few have adopted even more generous extensions.
But the IRS has not postponed the deadline for making estimated tax payments for this year’s first quarter, as it did last year when it delayed Tax Day because of the pandemic.
This year, the first estimated tax deadline remains April 15. Some members of Congress are pushing for the IRS to reconcile the deadlines, but it’s unclear whether that will happen, with April 15 less than a week away.
“It just creates confusion,” said Mark Stewart, a certified public accountant and president of the National Conference of CPA Practitioners.
So it’s a good idea to double-check deadlines.
Here’s what the IRS says about who needs to pay estimated taxes:
Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
The IRS continues to grapple with pandemic challenges. Filers are seeing “more refund delays” than usual this year, according to an online update on March 25 from the Taxpayer Advocate Service, an independent office within the IRS that represents taxpayers.
The number of returns processed by the IRS as of April 2 was down about 10% from a year earlier, according to statistics provided by the agency. But the start of this year’s tax season was delayed to allow the agency to update and test its systems to reflect tax changes approved by Congress late last year. The number of returns processed on comparable days of the season is up about 3%, the agency reported.
The agency is “on track when you consider that this tax season started late,” IRS spokesman Eric Smith said in an email.
Last year, a shutdown because of the pandemic left the IRS with a backlog of unprocessed paper tax returns. This year, even with the late start to the tax season, the agency is still struggling to deal with the 2019 paper returns, along with a crush of 2020 returns, IRS “resource” issues and technology problems, the advocate service said.
The advocate service said the IRS was also having to “manually verify” large numbers of rebate credits, which taxpayers can claim to obtain the first and second round of federal stimulus payments, if they haven’t already received them.
In addition, the agency has had to recalculate refunds for filers who reported unemployment benefits last year. The latest round of pandemic-relief legislation, which became law March 11, made the first $10,200 of unemployment benefits tax-free for many Americans. But some had already filed returns when the tax break became available, so they will get a refund of any overpayment — probably beginning in May.
On Wednesday, the IRS posted an update on its website, saying it had about 16.5 million unprocessed individual returns “in the pipeline,” including 2 million received before 2021.
Most people have income taxes withheld from their paychecks. If they overpay, they get money back as a refund when they file their return. But those who don’t have taxes automatically withheld — including self-employed people or workers who have two jobs and don’t have taxes withheld from both checks — generally have to pay taxes to the IRS four times a year.
Other income that isn’t subject to withholding includes alimony, interest and dividends, and taxes on the sale of stocks or other investments. Nearly 10 million filers paid estimated taxes in 2018, the IRS said.
The earlier deadline for the estimated tax payment makes the extension on tax-return filing less helpful than it should be for quarterly payers, tax experts say. The amount of estimated tax to be paid is typically calculated based on the previous year’s tax return, and the first installment is normally paid when the tax return is filed.
So if people haven’t completed their 2020 returns yet, they will have to estimate what they must pay in 2021 — and could face underpayment penalties at tax time next year if they pay too little over the course of the year. (The penalty is based on how much you owe and how long you have owed it, according to TurboTax.) They may still be charged a penalty if they are late with estimated payments, even if they are due a refund when they file their tax return, the IRS says.
Some people may not realize they have to make the first estimated payment before their 2020 return is due, Stewart said.
“They hear Tax Day is moved to May 17, so a lot of people will go to their preparer on April 30,” Stewart said. “Unfortunately, the first-quarter estimated payment is late.”
The conference and other groups representing tax professionals had urged the government to postpone the estimated tax deadline as well. In congressional committee testimony in March, IRS Commissioner Charles Rettig said the estimated tax deadline hadn’t been changed because it would, in effect, be giving “a break” on interest and penalties to wealthy people, who would invest the money instead of paying the government.
But people who file estimated taxes also include sole proprietors and workers in the gig economy with modest incomes, accountants say.
Many people who lost jobs in the pandemic switched to work delivering meals and groceries ordered by mobile apps, said Melanie Lauridsen, senior manager for tax policy and advocacy at the American Institute of Certified Public Accountants.
“That’s where the need is,” Lauridsen said.
The disconnect between the filing and estimated tax deadlines means tax preparers are pushed to get returns done by the traditional deadline anyway. “It’s putting a tremendous amount of stress on tax preparers,” said Rhonda Collins, director of tax content and government relations with the National Association of Tax Professionals.
In general, filers must estimate what they owe and round up to reduce the risk of underpaying. “It feels like it’s very much a guesstimate,” Collins said.
Should you incur a penalty when you file your tax return next year, you can request an abatement. Often, the IRS is lenient with first-time errors, she said, especially when there are extenuating circumstances.
It’s also important to keep track of your income in 2021, tax professionals say. Many people had lower incomes than usual during 2020 because of the pandemic, and could see them rise in 2021 if the pandemic wanes as expected and the economy expands. If your income is turning out to be higher than expected, you may need to increase the amounts of your estimated payments later in the year.
Here are some questions and answers about tax deadlines this year:
Q: When is the deadline for making contributions to individual retirement accounts and health savings accounts?
A: You can make contributions to IRAs and HSAs for the tax year 2020 up until the extended filing deadline on May 17, the IRS says.
Q: When are the deadlines for 2021 estimated tax payments?
A: The first is April 15, followed by June 15, Sept. 15 and Jan. 18 of 2022.
Q: How can I check the filing and payment deadlines in my state?
A: It’s wise to check your state’s revenue department website for details. You can look up the link on the Federation of Tax Administrators website.