State and Federal Tax Filing Changes Announced

Federal and state income tax filing due dates were both extended last week but these extensions do not apply to the estimated tax payments that are due on April 15, 2021.

The due date for individuals filing for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021 for federal income tax. The IRS will be providing additional formal guidance in the coming days.

The Pennsylvania Department of Revenue also announced the deadline for taxpayers to file their 2020 Pennsylvania personal income tax returns and make final 2020 income tax payments has been extended to May 17, 2021.

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

The state and federal governments both noted that those who make estimated income tax payments should continue to do so on the same filing schedule that they would normally follow. This includes taxpayers with estimated tax payments due on April 15, 2021. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

As part of the recent federal COVID relief bill, American Rescue Plan, many taxpayers will not be required to pay taxes on up to $10,200 in unemployment benefits received in 2020. It applies to those who made less than $150,000 in adjusted gross income last year. A married couple filing a joint return is limited to that $10,200 amount each, even if their total together is less than $20,400.

If you already filed your 2020 return before the law was enacted the IRS is advising those taxpayers not to do anything yet until they have updated the rules. It could take the federal government tax agency 30 to 45 days to reprogram computer systems to account for the American Rescue Plan. It’s unknown if taxpayers will need to file amended returns or if they’ll automatically get any refund automatically.

“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 Chuck Rettig. “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.”

Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until Oct. 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

As always, Realtors® should consult their financial advisor for any tax recommendations.