Mary Feichthaler

2021 has been an extremely unusual year with the IRS and Congress making multiple tax law changes in March which impact 2020 income tax returns. The Internal Revenue Service has extended more tax deadlines to May 17 after multiple requests from the American Institute of Certified Public Accountants and the National Conference of CPA Practitioners. Personal income tax return deadlines were previously extended to May 17, and now taxpayers can also make 2020 IRA, HSA, MSA and ESA contributions up to that date. This means taxpayers have an extra month to fund their 2020 retirement and health savings accounts. Those who wish to file an amended 2017 personal income tax return will now be able to do so if the return is postmarked on or before May 17, 2021. More information can be found in IRS Notice 2021-21.

Taxpayers who file their individual income tax returns and pay any balances due by May 17, 2021, will not be assessed any late filing or late payment fees. No extension need be filed to qualify for this postponement. 2021 estimated income tax payment dates remain unchanged, and the first quarter payment is due by April 15, 2021. Estimated payments are based on the amount of 2020 income tax due, so those payments must be made within the next few days to avoid the assessment of 2021 estimated income tax penalties. Individuals who will not file their 2020 personal income tax returns before April 15 must estimate their 2021 income tax liability before they complete their 2020 Form 1040 so that they can make a reasonable, timely first quarter estimated payment. The extension of time to file 2020 tax returns without a corresponding extension of time to pay the first quarter estimated income tax payment will cause extra work for both those who self-prepare their returns and for professional tax preparers.

Last week, the IRS also announced guidance on how it plans to handle the unexpected March 12 tax law change that now exempts some 2020 unemployment compensation from income tax. Unemployment compensation is typically taxed the same way as earned wages because it is a substitute for those wages. However, the Rescue Plan Act signed into law in March 2021 provides that, for taxpayers who have modified adjusted gross incomes under $150,000, the first $10,200 of their 2020 unemployment tax benefits is not taxable. The IRS changed the rule last week from adjusted gross income to modified adjusted gross income under $150,000 which is expected to benefit even more taxpayers. The $10,200 exemption is per person, so married couples can receive this benefit on up to $20,400 of 2020 unemployment benefits. Last week, the IRS announced it expects to take steps to automatically refund overpayments of tax on unemployment benefits beginning in May 2021. Previously, the IRS had stated that it is overwhelmed due to making a third round of stimulus payments and does not want taxpayers to file amended returns to take advantage of this new law. The major tax software companies updated their software at the end of March so that those who qualify for this new benefit but had not yet filed their 2020 tax returns would be able to calculate their 2020 income tax liability on unemployment benefits correctly and avoid delays in the correct calculation of their tax refunds. The IRS said it expects to be able to complete its adjustments to the non-taxation of some unemployment benefits by the end of the summer. The IRS stated that it will make the adjustments on simple individual tax returns before working on joint returns and then on tax returns which include Earned Income Tax Credit calculations.

For some taxpayers, more time beyond May 17 will be needed so that they can prepare a complete, accurate personal income tax return. As always, individual taxpayers who need more time to file their 2020 Form 1040 can continue to file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to qualify for a postponement until Oct. 15.

Mary Feichthaler is a licensed CPA and has 24 years of experience assisting individual, corporate and nonprofit clients in all areas of taxation including income tax compliance and audits, sales tax, FIRPTA and offers in compromise. She has lived in Cape Coral since 2002. She graduated magna cum laude from Georgetown University with a degree in accounting and graduated magna cum laude from Pace University with a Masters in Taxation. She can be reached at mary@feichthaler tax.com or at 239-898-8522.

The information in this article is general in nature and not intended as tax advice to anyone. Individuals should consult with a licensed CPA before making any tax or investment decisions.