"This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities," said IRS Commissioner Charles Rettig in a statement.
The news comes a day after a bipartisan group of legislators sent a letter to the IRS and Treasury Department, urging them to extend the tax filing deadline to July 15. The lawmakers argued that the IRS and taxpayers need time to grapple with the changes laid out in the American Rescue Plan. The American Institute of CPAs and the AARP also requested a postponement of the deadline.
The decision will give taxpayers an extra month to file as well as pay their 2020 federal taxes.
The IRS did not specify in its announcement if the May deadline would also apply to 2020 contributions for IRAs and HSAs. CPAs say that those deadlines are tied to the due dates of federal returns and so are likely to be extended. That's what happened last year, when the IRS delayed the tax deadline due to the pandemic.
The extended deadline applies only to federal tax returns and taxes owed. The IRS urged taxpayers to check with their state tax agency to see if the deadline has been moved, as this can vary state to state.
Last year, after the IRS announced that taxpayers would have until July 15 to file their federal taxes due to the pandemic, 41 states that have a personal income tax also postponed their April 15 filing and payment deadlines to July 15, according to the Journal of Accountancy. A few set different deadlines.
Despite this year's extension, it still might be in your best interest to get your 2020 taxes filed ASAP. Here's why.
"Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to," Rettig said in a statement.
Not everyone should quickly file their taxes, however. If you received unemployment benefits in 2020 and you made less than $150,000, you're entitled to a retroactive federal tax break on $10,200 of the jobless aid you received. The tax break is part of the American Rescue Plan.
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Since the Covid-19 relief bill was signed into law in this middle of tax season, the IRS is still figuring how to implement the retroactive tax break. If you haven't filed already, tax pros suggest you hold off until the agency issues guidance in the coming weeks.
And if you've already filed your 2020 taxes, the IRS says not to file an amended return yet. "We believe that we will be able to automatically issue refunds associated with the $10,200," Rettig said during a congressional hearing Thursday.
If you don't qualify for the unemployment tax break, though, filing sooner can offer some cash benefits, including an earlier tax refund. Last year, the average federal tax refund for individuals was $2,549. This year, the average refund so far has been just shy of $3,000 as of March 5, according to the IRS.
"The sooner you file, the sooner you'll be eligible to receive your refund," Jeffrey Levine, a CPA and the chief planning officer at Buckingham Wealth Partners, told Grow earlier this year. "That's money in your pocket sooner rather than later."
Aside from securing your refund, filing your 2020 taxes will allow you to claim any stimulus money you were owed but never received. If your income fell last year, you could be eligible to receive stimulus check aid in the form of a tax credit called the Recovery Rebate Credit. If you are claiming a new child on your 2020 tax return, filing your taxes will allow you to collect that additional aid, too.
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"The economic impact payments were based on your 2019, or in some cases your 2018, income," meaning the agency didn't know if the Covid-19 pandemic and recession affected your finances last year, Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center, recently told Grow. "When you file your 2020 taxes, the IRS will know how you might have been affected by the pandemic."
Filing soon can also allow you to avoid tax scams. The IRS said it found $2.3 billion of total tax fraud during the government's most recent fiscal year. That was up from $1.8 billion from the year before. And, while tax scams can happen at anytime, but they're more likely to happen during tax season.
If you still need more time to submit your return even with the new May 17 deadline, you can request an extension until October 15 by filing out a Form 4868. That gives you more time to file, although you will still need to pay any taxes owed by mid-May to avoid penalties and interest.
This story was updated to clarify tax filing recommendations for individuals who collected unemployment benefits in 2020.
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