If you haven’t gotten around to filing your 2020 taxes yet, you just got an extra 32 days to submit your return. The IRS announced Wednesday that it will extend the April 15 deadline to May 17. For residents of Texas, Louisiana and Oklahoma, the deadline had already been extended to June 15 due to the severe winter storm in February.
Accountants had urged the IRS to push back the deadline. Tax season didn’t start until Feb. 12, about two weeks later than usual. The $1.9 trillion American Rescue Plan passed in the middle of tax season, and the IRS has yet to give guidance on some of its provisions, making for an extra complicated tax season.
7 Things to Know About the Tax Deadline Extension
So what does the tax extension mean for you? Here are seven things you should know if you’re trying to decide whether you should take advantage.
1. You don’t have to do anything to get the extension.
Like last year’s extension, which gave taxpayers an extra three months to file returns, this one is automatic. The IRS won’t penalize you as long as you file by May 17.
2. The IRS is still processing returns as usual.
If you’re getting a refund and you don’t need more time to get your return in order, there’s no reason to wait until May 17 to file. Same goes for if you know you owe money and you can afford to pay it. Most online returns are processed within 21 days, according to the IRS.
But whatever you do, DO NOT file a paper return. The IRS is still working through a monstrous backlog of 2019 returns submitted by mail. If you file on paper, you’ll likely be waiting for them to process your return for months.
3. Waiting to file could delay your stimulus money.
If you’re eligible for stimulus money and you haven’t received it, your 2020 tax return could be your ticket to cash. If you’ve never filed before and no one can claim you as a dependent for 2020, filing a return could get you $3,200: an $1,800 rebate recovery credit from the first two payments of $1,200 and $600, plus the latest $1,400 stimulus check.
Parents of children born in 2020 will also get more money for filing. Those little stimulus babies will qualify for an extra $1,100 credit from the first two rounds on top of $1,400 for the third payment.
4. You get more time to fund your IRA and HSA.
Tax day is the deadline for funding an individual retirement account, or IRA. That means you now have until May 17, 2021, to max out your Roth IRA or traditional IRA contribution for 2020. The limits for both 2020 and 2021 are $6,000 if you’re younger than 50 or $7,000 if you’re 50 or older.
Ditto on your health savings account or HSA. In 2020, individuals can contribute up to $3,550, while families can contribute $7,100. Those limits rise to $3,600 and $7,200, respectively for 2021. People 55 and older are allowed to save an extra $1,000 for each tax year.
You can still contribute for 2020 even if you’ve already filed. This is easiest if you’re funding a Roth IRA. Your contributions aren’t deductible, so you don’t have to report them on your return. It’s more complicated, though, with deductible contributions to a traditional IRA or HSA. If you’ve already filed, you’d need to submit an amended return to take advantage.
5. Your state taxes may still be due April 15.
If you live in one of the 41 states with income taxes, your state taxes could still be due April 15. Check your state’s tax agency website to see if your deadline has been moved.’
6. Freelancers still need to make estimated payments by April 15.
If you’re a freelancer or you have a side gig that doesn’t come with a W-2, you’re required to make quarterly estimated payments by Jan. 15, April 15, June 15 and Sept. 15. These deadlines haven’t changed, so plan to pay your freelancer taxes for Jan. 1 through March 31 by April 15, as usual.
7. Your deadline will still be Oct. 15 if you file an extension.
You can automatically get more time to complete your return by filing for a tax extension, but the regular Oct. 15 deadline will still apply. Keep in mind that an extension buys you more time to file, but it doesn’t give you more time to pay. If you owe taxes, you’ll start incurring penalties after May 17.
What Should You Do if You Can’t Afford Your Taxes?
If you can’t afford your tax bill now, be honest with yourself. Do you think your financial situation will be dramatically different in two months?
If the answer is no, it really doesn’t make that much sense to put off filing. You can submit your return, even if you can’t afford to pay anything. You can typically qualify for an IRS payment plan online in just a few minutes.
Regardless of when you file, just know that the penalties are much steeper for not filing than they are for not paying. Fail to file a return and you’ll be charged 5% per month plus interest, up to 25% of your bill. Fail to pay and you’ll pay just 0.5% (or 0.25% if you’re on a payment plan), plus interest, up to 25% of the balance.
The bottom line: Whatever you do, never try to hide from the IRS.
Robin Hartill is a certified financial planner and a senior writer at Codetic. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].