Two weeks from extended deadline, IRS announces new tax law changes
With just over two weeks left until the 2020 extended individual income tax deadline on May 17, the IRS has announced additional new tax law changes impacting 2020 income tax returns. The IRS has also disclosed a significant delay in the processing of income tax refunds and quarterly estimated tax payments as well as a six-month extension on the temporary authorization of the use of electronic signatures on certain tax forms.
On March 12, personal income tax return deadlines were previously extended to May 17. It was also announced that the first $10,200 of unemployment benefits paid to eligible taxpayers during 2020 will not be subject to income tax. In mid-April, the IRS released IR-2021-84, which stated that taxpayers who received excess advance healthcare premium credits (“APTC”) in 2020 will not be required to file Form 8962 or repay those credits. This is a reversal of how APTC’s have been treated in every other past year.
An APTC is the excess of the amount of healthcare premiums paid on behalf of a taxpayer during the year over the amount of premiums the taxpayer should have paid him or herself during the year.
Generally, taxpayers complete Form 8962 to determine whether or not they received excess APTC’s or if the taxpayer may claim an additional premium tax credit through an individual income tax return. As it did with the change to the taxation of unemployment benefits, the IRS has stated that it will automatically refund APTC’s for taxpayers who filed their 2020 income tax returns prior to the change in the tax rules. The IRS has requested that taxpayers do not file an amended 2020 individual income tax return to claim the APTC. This tax rule change is only applicable to 2020 tax returns.
The IRS announced this week that the agency has been pushed to the limit this year, so refund requests, even for early filers, are taking at least eight weeks. Generally, taxpayers who file their returns within the first two weeks of the IRS accepting tax returns receive refunds in approximately five business days. This year, the IRS delayed tax season opening day several weeks until Feb. 12, and refunds have been taking longer than usual to process even for early filers. The IRS said it is still dealing with a COVID-19 related backlog of 2019 income tax returns and still has millions of pieces of unopened mail from 2020. Taxpayers who claim credits or who received unemployment benefits are experiencing the longest refund processing delays. Due to IRS phone lines being overburdened, taxpayers are finding it difficult or impossible to speak to an agent about their income tax returns. Earlier this week it was announced that the IRS is holding 29 million tax refunds because they need to be processed manually.
Taxpayers can track the status of their refunds at: https://www.irs.gov/ refunds. Taxpayers who filed amended returns in 2019 and 2020 are also finding that the IRS is not even acknowledging receipt of returns mailed to them four months after they were postmarked. The IRS is now accepting e-filing for some amended returns, so taxpayers are encouraged to e-file rather than mail amended returns when possible.
In addition to IRS refund delays, the agency has also struggled to process 2021 first quarter estimated income tax payments. First quarter payments made electronically through the IRS’s Modernized e-file system. The IRS identified the problem with its e-filing system earlier last week and has now begun processing those pending payments. Taxpayers and professionals were concerned when payments did not go through as expected on April 15. According to the IRS, taxpayers will not be assessed penalties for payments that were authorized for direct debit on April 15 but which the IRS did not collect until after that date.
On a more positive note, the IRS also announced in a memorandum dated April 15 that it will now accept electronic signatures on designated tax forms through Dec. 31, 2021. Originally, the IRS announced it would accept e-signatures for the fourth quarter of 2020. The forms must be printed and filed on paper, but they can be e-signed and printed which minimizes in-person contact.
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 October 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.
Mary Feichthaler can be reached at email@example.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.