Tax Filing and Payment Deadline Extended for 2020
In response to the new American Rescue Plan, which was signed into law in March, the Internal Revenue Service has extended the 2020 tax filing deadline for individuals from April 15 to May 17.
Not only will this give North Bay residents and businesses more time to file and pay their taxes, but it also gives the IRS time to create new forms, clarify inconsistencies and implement a process to support one of the major changes that came from the new law — a tax break for people who received unemployment benefits in 2020.
Though some details about the recent changes are still unclear, here’s a brief overview of everything we know so far about the new tax deadline, the unemployment exclusion, and some of the common questions surrounding those updates.
If you have further questions, or you simply want to stay up-to-date on the changing IRS guidelines and make sure your return is filed correctly, it’s best to consult with a tax professional. And if you’re a Marin County resident, you can rely on ProActive Tax Solutions to help you with all of your tax preparation needs.
What is the New Unemployment Exclusion?
If you received unemployment benefits in 2020 and your adjusted gross income is less than $150,000, the new law states that you don’t have to pay federal income taxes on the first $10,200 of benefits you received. This applies to benefits received through federal unemployment programs and also benefits received through a state unemployment insurance fund.
There’s still some confusion about how this affects people who are married and filing jointly or separately. However, the IRS has clarified that if you file jointly with your spouse and have a modified AGI of less than $150,000, you can each exclude up to $10,200 of unemployment compensation that you received.
For example, if you received $12,000 in unemployment benefits and your spouse only received $500, you can exclude $10,700 from being taxed ($10,200 for you and $500 for your spouse).
If you are filing a 1040-NR for a spouse who’s a non-resident alien, then you can’t exclude any unemployment compensation for your spouse.
How To Take Advantage of the Unemployment Tax Break
The unemployment tax exclusion will need to be reported separately from your unemployment compensation. The IRS has created an Unemployment Compensation Worksheet to help you calculate this, which is available on the IRS website at this link.
If you have already filed your 2020 tax return, do not file an updated return to account for this change. The IRS is still working out the details of how they will be implementing this new policy, and filing additional forms will just complicate and slow down the process. Instead, you should wait for additional guidance from the IRS, as more information should be coming between now and the extended tax deadline.
Understanding the Tax Deadline Extension
With the recent extension, the federal deadline for filing 2020 individual tax returns has been moved to May 17. Individuals can also postpone federal income tax payments to May 17 without accruing any penalties or interest.
This extension is automatic, so taxpayers don’t need to fill out any additional forms or contact the IRS to take advantage of it.
If you need to file later than the May 17 deadline, you can also request a filing extension by filling out Form 4868. However, it’s important to keep in mind that while this gives you until Oct. 15 to file your taxes, you will likely still have to pay interest and penalties if you don’t pay your federal income tax by May 17.
Should I Wait to File My Taxes?
If you didn’t collect any unemployment benefits in 2020, it may still be best to file your tax return as early as possible, especially if you expect a refund. Doing this, along with filing electronically and setting up direct deposit, will help you get your refund more quickly.
If you collected unemployment benefits in 2020 and haven’t already filed your taxes, we recommend waiting and taking advantage of the tax deadline extension. This will allow you to see the additional information the IRS plans to provide and will help ensure that you file your return correctly the first time.
Keep in mind that if you are someone who needs to pay estimated tax payments because your income isn’t subject to tax withholding — whether you’re self-employed or receiving interests, dividends, alimony or rental income — the first payment for 2021 is still due on April 15, and the deadline has not been extended.
Regardless of your tax status, it’s more important than ever to work with a tax professional this year, since policies are more complicated and rapidly changing. Working with licensed tax professionals, such as the team at ProActive Tax Solutions, can help you make sure you’re filing your taxes correctly, taking advantage of as many deductions as possible. Plus, we can represent you before the IRS or the state of California if you happen to be audited, so you can have greater peace of mind this tax season.
How Do The Changes Affect California State Taxes?
Since California doesn’t tax unemployment benefits at the state level, the new policies have less of an impact on state taxes. However, California is complying with the tax deadline extension, so you have until May 17 to file your state return and pay any state income taxes owed.
The Value of Working with a Tax Professional
In this especially confusing tax season, working with a tax professional could save you even more time and money than usual. At ProActive Tax Solutions, we’re committed to staying up to date on all the latest information surrounding tax filing, so that we can help our clients take advantage of new benefits and receive their returns as quickly as possible.
If you haven’t finished your 2020 tax return yet, or if you’ve already filed but want help from an expert to understand how the recent policy changes will affect your unique situation, our year-round tax preparation and consulting services are a valuable option to help you navigate this tax season.
Call us today at (415) 924-6240 to set up a free consultation and learn more about why we are the choice for residents in North Bay.