What to know about refund delays, stimulus taxes
When the coronavirus pandemic began, the tax deadline was moved from April to July 15. According to Business Insider, at least 7 million Americans still need to file their taxes. While these numbers show that roughly 5% fewer than the same time last year, the numbers are misleading. Tax filings include those who made a simple tax return to register for a stimulus payment. This means those who aren’t required to file may have artificially inflated the number of those needing to file.
The Internal Revenue Service’s three-month reprieve for filing federal tax returns ends Wednesday, and if you are expecting a refund, accountants have this tip for you:
That’s usually faster than submitting a paper return, anyway, but it’s particularly important this year: The IRS is struggling with a backlog of returns and supporting documents after temporarily shutting down its mail and processing facilities, IRS National Taxpayer Advocate Erin Collins said in a June 29 report.
“Taxpayers who filed a 2019 paper return and are entitled to a refund may be in for a long wait,” Collins wrote.
The deadline for state returns in Iowa is July 31.
The 2020 tax season kicks off Jan. 27 when the IRS begins accepting tax returns. (Photo: Susan Tompor, Detroit Free Press)
The three-month reprieve apparently didn’t slow the pace of returns. The IRS has received almost as many at this point as it did last year. Through July 3, according to the agency, 142 million taxpayers filed their returns — only about 3% fewer than the number on the same date in 2019.
By contrast, the agency has processed fewer of those returns. As of July 3, the IRS had processed 130 million returns, about 10% fewer than the 144 million returns it processed as of July 3, 2019.
About 4.7 million paper refunds were in a backlog as of May 16, Collins wrote in her report to Congress. IRS Commissioner Charles Rettig told the U.S. Senate Finance Committee in late June that reducing this backlog was a “high priority” for the agency and that he hoped to cut the backlog by about 1 million returns a week.
Paper returns aren’t the only things stacked up. Collins said some taxpayers must provide additional paperwork if their returns raise any flags with the agency. This year, however, the IRS temporarily shut down mail facilities, leaving that supporting documentation unopened for several weeks.
Ann Hartz, a certified public accountant in Des Moines, said business remained brisk over the past couple of months, even though the federal and state governments postponed filing deadlines.
Hartz said many people who hadn’t filed for years began to make appointments, apparently inspired by the $1,200 stimulus checks that the federal government sent out in April. To receive a check, taxpayers needed to have filed through 2018.
Even with those new clients showing up weeks and months before the deadline, the past week has been even busier than the typical run-up to tax day, she said.
“We’re getting lots of emails, people calling, wanting to get appointments,” Hartz said.
Matt Heglin, the lead accountant at Accounting Associates on Indianola Avenue in Des Moines, said his office also saw a rush of new clients this year because of the stimulus checks. But his team has not held in-person appointments since mid-March.
Instead, they ask clients to drop paperwork off at the front desk. The accountants call if they have any questions and run important forms out to clients in their cars, asking for their signatures.
“It’s challenging,” Heglin said.
Here are some key pieces of information to know this year:
If you’re reading this, it’s not too late
While an accountant probably can’t help new clients file taxes by Wednesday’s deadline, taxpayers can save themselves penalty payments by submitting a request for an extension.
They can file the extension online, through the IRS’ Free File program. Or they can fill out the application, known as a Form 4868, and mail it to the IRS. Iowa residents need to mail the form to P.O. Box 931300, Louisville, Kentucky, 40293.
Since paper applications must be sent by Wednesday’s deadline to avoid a 5% penalty fee, Heglin advises sending it by Certified Mail for proof it was sent on time. Taxpayers who owe money to the government but don’t make a payment by Wednesday’s deadline would owe a 0.5% penalty fee.
“Just don’t freak out,” he said. “Worst-case scenario, you file the extension. You save yourself some (penalty) money.”
If you can’t afford the payment
The IRS offers an installment agreement. But, Hartz warns, these agreements are far from ideal.
While the monthly payments will not look as daunting as the lump sum, the federal government charges penalties and fees on unpaid amounts.
“It’s very difficult to get that paid off,” she said, comparing the system to a credit card.
Online tax prep
For anyone earning less than $69,000 a year, the IRS offers a free online version of commercial tax preparation products like TurboTax. Anyone who does not qualify for the program can instead use the IRS’ free fillable forms resource, which performs basic math and validates whether users have answered all of the necessary questions.
Military service members get free tax prep and advice through the Defense Department’s MilTax service.
Private companies may also be able to process taxpayers’ forms online. EY TaxChat offers an accountant to provide online help for $200. H&R Block also offers remote tax assistance.
Stimulus programs’ impact on taxes
The direct payments provided by the federal government as part of the stimulus package passed by Congress in late March is tax-exempt. For taxpayers earning $75,000 or less (or $150,000 or less for married couples), the stimulus came out to $1,200 per person. They also received another $500 per dependent child under 16.
But for the millions of workers laid off in the wake of the pandemic, unemployment payments are not tax-exempt. This includes the base unemployment payment from the state, as well as the added $600 weekly benefit from the federal government. Iowa Workforce Development and other state agencies that administer such payments may deduct taxes from the amount sent to workers.
As with the deadline to actually file tax returns, the federal government also extended the deadline for making individual retirement account contributions for the 2019 tax year.
Any contributions made to the account before Wednesday are deductible or, depending on a worker’s income level, partially deductible.
Taxpayers under 50 can deduct up to $6,000 in contributions to an IRA. Taxpayers over 50 can deduct up to $7,000.
Tyler Jett covers jobs and the economy for the Register. Contact him at 515-284-8215 and firstname.lastname@example.org. Follow him on Twitter @LetsJett.
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