U.S. Taxpayers Need an Extension This Year, Too

Sure, life is inching its way back to normal, but not for taxpayers. That’s why the Internal Revenue Service should extend the filing deadline this year, just as it did in 2020.

One of the main reasons to again give filers extra time after April 15 is the Covid-19 relief bill. The legislation calls for making some of the unemployment benefits Americans received in 2020 exempt from taxes. It's a last-minute switch that will affect as many as 40 million taxpayers, some of whom have already filed their returns (the filing season started Feb. 12). While it's welcome relief for many families, from a tax perspective, there's no easy way to accommodate the change.

The IRS has already created the 1040 tax forms and there’s no line for the unemployment-benefit exemption. The agency has to figure out how to amend already filed returns and how to change its systems to accommodate new ones. Will it issue revised 1040s? Create a new portal? Have those affected make a claim and then issue them refunds next year? The IRS will need time to sort it out, and confused taxpayers will require even more.  

And that’s far from the only delay. The tax-filing season is already behind its usual schedule of starting at the end of January because of tax law changes made as part of last year's pandemic relief bill, the Cares Act. The IRS and the public were already dealing with changes touching everything from small business loans to charitable deductions (and are still getting used to 2017 changes resulting from the biggest rewrite to the tax code since the administration of President Ronald Reagan).

Extending the deadline by 60 days to June 15, as a trade group for accountants is calling for, seems reasonable. It would give the IRS, taxpayers and tax preparers time to adjust to the new changes, while not wreaking too much havoc on most states' budgets, which have fiscal years ending June 30.

Data show that taxpayers are struggling. The number of returns filed by the first week of March dropped 18% compared to a year earlier, while visits to IRS.gov jumped almost 73%, according to IRS figures. Just 27% of telephone calls to the IRS are being answered. A separate survey by tax preparer H&R Block found that 56% of taxpayers have more tax questions than they did last year. 

Those who rely on free tax return preparation are especially at risk. The IRS provides volunteer advice sites to low income, older or non-English-speaking taxpayers. Some of those sites are closed due to Covid-19. And even if a site is open, it may not be able to reach its clients, who often don't have broadband connections. Extending the tax filing deadline would give some of these sites more time to open and assist more people.

If the IRS were to extend the deadline, there are a few things tax filers should keep in mind. First, remember that the longer you wait to file, the longer you wait to get your refund. So taxpayers who aren't affected by the unemployment benefits or other recent changes should act sooner rather than later. Last year's July 15 deadline meant a longer time to process refunds for some, but it's reasonable to think delays won't be as widespread this year because most IRS staffers are back at work. 

Taxpayers who had lower incomes in 2020 than 2019 will want to file as soon as possible so they get the correct amount for their stimulus payment (since the IRS uses the most recent tax filing when making its calculation). Parents who have had a change from 2019 in terms of who their children are living with may also not want to wait too long to file. That's because to be eligible for the pandemic bill's expanded child tax credit, a child must be living with a parent for at least six months of the year.

Finally, beware if you live in a state with income taxes. States won’t necessarily follow suit if the federal government pushes its deadline back. Those that don’t will gum up commercial tax-filing software, which often uses federal tax information to calculate state returns.

There’s no time to waste. Last year the IRS declared its extension just a few weeks before April 15. With circumstances even more confusing this year, the time for an extension announcement is now.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she wrote about personal finance, asset management and mortgages, and oversaw tax coverage for Bloomberg News.

©2021 Bloomberg L.P.

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