A veterinary science professor at Oklahoma State University was flummoxed trying to e-file his 2020 individual tax return due May 17, 2021 over the weekend. The professor, Jerry Ritchey, who has successfully e-filed his returns for umpteen years, got a rejected message. The problem: The Internal Revenue Service still hasn’t processed his 2019 tax return, which he filed in July of 2020. You have to enter your prior year adjusted gross income when you e-file, and the system said the 2019 AGI number he entered didn’t match what the IRS had on file. He tried to call the IRS but got a volume too high, call back tomorrow recording. “Gotta love it!!!” he wrote me in an email asking for advice. The solution (I found it on the IRS Covid-19 operations page): If your 2019 tax return is still outstanding, you have to enter $0 (zero) as your prior year AGI. “It worked!!!!!!!!” Ritchey emailed back after trying the fix.
You can be an expert in anatomic pathology, and it’s still hard to file your taxes! If you’re like Ritchey looking for tax filing answers as the deadline approaches, here’s help.
What’s the filing due date? For most individual taxpayers, the due date for filing and paying federal income taxes for tax year 2020 is Monday, May 17, 2021, delayed from April 15 because of the Covid-19 pandemic. However, the deadline is delayed even longer for residents of states which had natural disasters. If you live in Oklahoma, Louisiana, or Texas, because of the February winter storms there, the federal deadline to file and pay 2020 taxes is June 15, 2021. Victims of this spring’s storms and tornadoes in Tennessee have until August 2, 2021 to file and pay. You need need to e-file by 11:59 p.m. in your time zone or get a USPS postmark that day.
Can I get an extension? Whether your initial deadline is May 17, June 15 or August 2, if you need more time beyond that, you must file a request for an automatic extension (Form 4868) by the initial deadline, and you’ll get until October 15, 2021 to file. But you still have to pay by the initial deadline to avoid late penalties and interest.
File electronically and use direct deposit. It looks like taxpayers are wisely choosing e-file and direct deposit. That’s smart because paper-filed tax returns and paper checks take longer to process. According to IRS filing statistics as of May 7, the number of direct deposit refunds is up over 6% compared to last year. This means that millions of Americans this year switched from receiving their refunds by paper check to getting them electronically. The average refund is $2,863. You can provide routing information for up to three accounts—even retirement accounts—on your tax return to which the IRS can send your refund (or take out your payment if you owe taxes).
What if your 2019 tax return is still outstanding? As of May 14, the backlog of individual prior-2020 tax returns, mostly tax year 2019 returns, at the IRS was down to 600,000. That’s a lot, but the IRS is making progress. As of May 11, there were 1 million prior-2020 tax returns, down from 2.4 million as of March 5. To e-file your 2020 return when you need to enter your 2019 Adjusted Gross Income, enter zero ($0). If you used the Non-Filers: Enter Payment Info Here tool last year to register for an Economic Impact Payment, enter “$1” as your prior year AGI.
Stimulus payment true up. Most taxpayers got two economic-impact payments in Round 1 and Round 2. If you’re eligible—and either didn’t receive a payment or think you qualify for more than you got—you can claim a Recovery Rebate Credit on your 2020 tax return. For example, if your income was lower in 2020 than 2019, you may be owed a partial credit. Or, if you were claimed as a dependent on someone else’s tax return in 2018 or 2019 but won’t be for 2020, you may be eligible for the credit.
What about Round 3 economic-impact payments? These began rolling out to Americans on March 12 based on 2019 or 2020 tax return information, with 165 million payments sent out as of May 12. The latest batch sent out on May 7th included 460,000 plus-up stimulus payments for people who earlier this year received payments based on their 2019 tax returns but are eligible for a new or larger payment based on their 2020 tax return. The IRS will continue to make Economic Impact Payments on a weekly basis.
Advance 2021 child tax credit. The American Rescue Plan also included provisions for the IRS to start sending eligible taxpayers advance payments of the 2021 child tax credit. Filing your 2020 tax return will help the IRS determine if you’re eligible. The IRS announced today that the first monthly payments (by direct deposit or check) will hit July 15. Roughly 39 million households, covering 88% of children in the country, will get these advance payments.
Covid-19 related 401(k) distributions. If you took a CARES Act 401(k) or IRA distribution in 2020 under the loosened rules for tapping your 401(k) penalty free, you can report all of the income on your 2020 tax return or in equal installments over three years. Alternatively, you can recontribute money back into a retirement account and undo the tax consequences of the distribution. For details, see the new IRS Form 8915-E and instructions.
Unemployment benefits are taxable, but there’s a big exception. In the American Rescue Plan, Congress made up to $10,200 of 2020 unemployment benefits nontaxable as part of the spring 2021 Covid relief package. Generally, unemployment benefits are taxable, including basic state benefits as well as the extra $600 weekly CARES Act federal pandemic benefits. You should have received a Form 1099-G showing the amount you were paid and any federal income taxes withheld. If you didn’t get a 1099-G, check your state’s unemployment compensation website to access it. For folks who already filed 2020 returns including unemployment compensation, the IRS is making automatic corrections and has just started issuing refunds based on the new $10,200 exclusion. Note: The $10,200 is the amount of income exclusion, not the amount of the refund. Refund amounts will vary and not all adjustments will result in a refund.
The American Rescue Plan also suspended the requirement to repay excess advance payments of the Premium Tax Credit used to lower your monthly health insurance premiums. If you paid an excess APTC repayment amount when you filed your 2020 tax return, the IRS is also refunding this amount automatically.
Gig work is taxable. If you picked up a side job during the pandemic, you have to include it on your tax return as self-employment income. The basic rule is this: Individuals must file a tax return if they have net earnings from self-employment of $400 or more from gig work, even if it’s a side job, part-time or temporary. If you have self-employment income, make sure you keep track of deductible expenses relating to your gig, and if you’ve set up a home office, you might qualify for the home office deduction.
Got crypto? The 2020 Form 1040 asks whether at any time during 2020, a person received, sold, sent, exchanged or otherwise acquired any financial interest in any virtual currency. If your only transactions involving virtual currency during 2020 were purchases, you’re not required to answer “yes” to the question.
Check out the new charitable deduction for 2020. If you made cash gifts to charities in 2020, there’s a new $300 above-the-line charitable donation deduction per tax return. That means that even if you, like most taxpayers, take the standard deduction and don’t itemize deductions, you can take the $300 charitable deduction. Substantiation rules for cash gifts by itemizers also apply to nonitemizers. You need proof of your gift. For gifts under $250, credit card statements or cancelled checks will work as a receipt. For gifts of $250 or more, you need a written acknowledgment from the charity. For planning charitable gifts for 2021: There’s a new $600 charitable tax deduction for 2021.
Save for retirement by maxing out your 2020 IRA. You can make tax year 2020 contributions to an Individual Retirement Account through May 17, 2021, and take a tax deduction if you’re eligible. For 2020, the limit on annual contributions to an IRA (pretax or Roth or a combination) is $6,000, plus a $1,000 catch-up contribution allowed if you’re 50 or older. For 2020 and later, there is no age limit on making IRA contributions. If you’re self-employed and have more room for retirement savings, you can still open and fund a SEP-IRA for 2020 through May 17.
Save for healthcare expenses, or retirement, by maxing out your HSA. If you have a high-deductible health plan, you can contribute to a health savings account and get a triple tax benefit. The money goes in pretax, grows tax free, and comes out tax free if you use it for eligible healthcare expenses. Typically you contribute via salary deferrals but you can top up your annual contribution for the prior tax year through the tax filing deadline. That means you can make 2020 contributions through May 17, 2021. For 2020, the maximum contribution amount is $3,550 for individual coverage, or $7,100 for family coverage, plus a $1,000 catch-up if you’re 55 or older. If you take out money for non-healthcare needs, you’ll owe taxes—plus a 20% penalty if you’re under 65. Like to plan ahead? The IRS just announced HSA limits for 2022.
Use the IRS Where’s My Refund? tool. Most refunds are sent within 21 days of e-filing. If you’re expecting a refund and want to know when you might get it, the Where’s My Refund? tool on the IRS website lets you plug in your name, filing status and refund amount to check on the status. A personalized refund date should show up 24 hours after you e-file.
How can you check the status of your 2019 return?
The Where’s My Refund? tool only tracks the current year, but if you used the tool last year, and it told you that your return was received, then the IRS will either contact you if there’s a problem, or issue your refund when it’s ready, says an IRS spokesperson. These refunds will include interest. Even if you didn’t use the Where’s My Refund? tool, the acknowledgement for an e-filed return also indicates that the IRS received the return. “Please, please, please don’t file a second copy,” the spokesperson pleads. That won’t speed things up and will, most likely, result in further delays. That’s because our folks will need to take additional time to resolve any discrepancies between the return, already received, and the second copy. For example, we will need to determine whether it was a true copy, a corrected return, or even, an erroneous or fraudulent claim.
Tweak tax payments for 2021. If you’re getting a refund, especially a big one, you can use the IRS tax withholding estimator to determine how much tax to withhold from your paycheck. Then fill out a new form W-4 withholding allowance certificate, and you’ll get more in each paycheck, instead of essentially loaning it to Uncle Sam. On the flip side, if you owe a lot at tax time, you might need to make estimated tax payments for 2021. The due date for first-quarter 2021 estimated taxes was April 15, 2021. This deadline was not extended (except for those with delayed deadlines because they live in the disaster areas). Missed it? Estimated payments are due quarterly—the next due date is June 15, 2021
Get an IRS online account. You can get an IRS online account that gives you access to key information from your most recent tax return, balance details, and digital copies of notices and letters from the IRS. You can also use it to check the amounts of your stimulus payments.