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Tax return deadline is May 17: Why filing is vital for parents

Tax return deadline is May 17: Why filing is vital for parents

FINANCIAL NEWS

Tax return deadline is May 17: Why filing is vital for parents

Biden stimulus package details of $1.8 trillion American Families PlanBiden stimulus package details revealed: American Families Plan includes free childcare, community college, and possible hike of capital gains tax.Staff Video, USA TODAYThanks to the pandemic, it’s been another oddball tax season.The original deadline for filing 2020 federal income tax returns would have been April 15 but the ongoing disruptions, including a backlog at the Internal Revenue Service from last year, ultimately forced the agency to extend the deadline to May 17.Yes, the deadline is Monday.  And many people, including those who normally aren’t required to file, will want to file a 2020 income tax return. Some may qualify for extra cash by claiming the Recovery Rebate Credit — found on Line 30 of the 1040 or 1040-SR. The credit is essential to claim on the 2020 tax return if you didn’t get your stimulus or didn’t get all the money you’re qualified to receive in the first two rounds of stimulus payments.Another key tip: Many families should file a 2020 income tax return to receive some extra cash later this year through the expanded Child Tax Credit. That’s true even if you don’t normally make enough money to need to file a federal income tax return. If you’ve waited until the last minute — or perhaps got so distracted that you forgot that May 17 was closer than you imagined — here are some useful tax tips:Where’s my tax refund? Americans face delays as IRS holds nearly 30M tax returns for manual processingUnemployment tax break:Some may need to amend returns for tax refundsWho gets a deadline extension?? May 17 isn’t the deadline all across the country. There are some exceptions. The IRS notes that victims of the February winter storms in Texas, Oklahoma and Louisiana have until June 15 to file their 2020 federal returns and pay any tax due, for example.Military service members and eligible support personnel serving in a combat zone also have at least 180 days after they leave the combat zone to file their tax returns and pay any tax due.U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico have until June 15 to file their 2020 tax returns and pay any tax due, according to the IRS. The special June 15 deadline also applies to members of the military on duty outside the U.S. and Puerto Rico who do not qualify for the longer combat zone extension.Watch out for wrong numbersYou want to make sure that you’ve entered the correct Social Security numbers for yourself, your spouse and children. The wrong numbers can delay your tax refund and cause headaches. Make sure you have the correct routing number and bank account number for direct deposit of a tax refund.Child tax credits: When will child tax credit payments start? Checks set to roll out in July, IRS saysGet the address rightIf mailing a return, send it to the correct address.Your best bet, typically, is to file your tax return electronically and request direct deposit if you’re owed a refund. If you owe the IRS money, you can e-file and pay via electronic funds withdrawal or pay online. See IRS.gov/payments. But if you are mailing an income tax return, take time to double-check where you’re sending it. You could be surprised to learn that you must send some returns to a different IRS location than a year ago.Michigan residents, for example, now must send a 1040 federal income tax return when a tax refund is requested or if you’re not enclosing a check or money order to the Department of the Treasury, Internal Revenue Service, Ogden, Utah, 84201-0002. (Last year, similar 2019 returns would have been sent to California.)Michigan residents who owe money and are enclosing a check still must send that return to the Internal Revenue Service, P.O. Box 802501, Cincinnati, Ohio, 45280-2501. You find the accurate address by looking at the IRS 2020 Tax Year Instructions. Errors over the Recovery Rebate CreditThe Recovery Rebate Credit is triggering some stimulus-related mistakes on 2020 income tax returns that have already been filed. The IRS will end up mailing you a letter if you claimed the 2020 Recovery Rebate Credit and may be getting a different amount than expected. The mistakes also cause delays in receiving your income tax refund. As of March 18, the IRS received 18.7 million e-filed returns that claimed recovery rebates totaling $27.9 billion, according to a May report by the Treasury Inspector General for Tax Administration. But 6.4 million — or 34.2% of that group — ended up being flagged for errors because of a discrepancy with what the taxpayer said was already received for an Economic Impact Payment and the IRS records. Here’s a list of what some people are doing wrong:You were claimed as a dependent on another person’s 2020 tax return. If so, you don’t qualify for the first or second stimulus payments. Don’t claim the recovery rebate credit. You did not provide a Social Security number that’s valid for employment.You tried to claim stimulus money — which you wouldn’t be qualified to get — for a child who was age 17 or older on Jan. 1, 2020.You overlooked a math error relating to calculating adjusted gross income and any Economic Impact Payments already received.If possible, dig up accurate stimulus numbers by looking for letters that the IRS sent out earlier, such as IRS Notice 1444 for the first Economic Impact Payment and IRS Notice 1444-B for the second EIP to document how much stimulus money you were sent. The first Economic Impact Payment began rolling out in April 2020 and the second Economic Impact Payment was approved last December but began rolling out in January 2021. If you threw those letters out or did not receive them, some taxpayers may be able to research any direct deposit money received by reviewing their bank statements for Economic Impact Payments. Remember, the IRS notes: “To claim the 2020 Recovery Rebate Credit, you must file a 2020 tax return, even if you aren’t required to file.” Why is filing a 2020 return vital for parents? The scope of the newly revised Child Tax Credit has been expanded significantly to cover children ages 17 and younger, instead of stopping at 16.More important, families will be able to receive cash from the child credit for 2021 as part of a new system from July through December. The goal is to help families pay bills now, instead of waiting for money to arrive next year.The expanded credit is worth up to $3,000 per child a year for children ages 6 to 17. The credit offers an extra $600 — providing up to $3,600 — for each child 5 and younger. By filing a tax return, experts say, the IRS will know where to send your payment and how many children you have. The amount was temporarily increased under the American Rescue Plan Act for tax year 2021. Families would receive payments for half of this year and then must file a tax return next year to receive the rest of the money.  This year, you’d be able to receive up to $250 a month for each child between 6 and 17 and you’d receive up to $300 per month for each child age 5 and younger.The credit itself is complicated and has many rules. If divorced, for example, only one parent can claim the credit for a child. The child must also live with you for at least six months out of the year.Antonio Brown, a Flint CPA who is a member of the Michigan Association of CPAs, said it’s important for people to realize that it will help to file a tax return for 2020 to start receiving money through the newly revised credit as early as July. “The IRS will use the 2020 tax return for payouts of the credit,” Brown said. “It will be important that taxpayers report their current bank account for the direct deposit even if they owe taxes for 2020. This will ensure the IRS has the most account number.” IRS Commissioner Charles Rettig has said that filing a 2020 tax return is necessary to provide a basis for the IRS to document who is entitled to advance payments of the 2021 Child Tax Credit.The Child Tax Credit is a refundable credit, meaning that families can receive money that exceeds what they owe in taxes for a year. So if you owed $600 in taxes but had a 5-year-old child, you’d still be able to receive a $3,000 refund under the new expanded credit. Under the old rules, the Child Tax Credit offered up to $2,000 for each child age 16 and younger but refunds were limited to $1,400 per child.The Child Tax Credit for 2021 will be fully refundable, while the Child Tax Credit for 2020 was only partially refundable, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Not every family will qualify for the larger Child Tax Credit or perhaps any credit at all. The phaseout range for the Child Tax Credit for 2020 starts at modified adjusted gross income of $400,000 for married filing jointly and $200,000 for other filers. “This remains the phase-out range for the Child Tax Credit for 2021 for the basic $2,000 credit,” Luscombe said.But for 2021, there could be an extra amount of money on top of the $2,000 for many families who have more modest incomes. If you’d qualify, you’d get up to an additional $1,000 for children ages 6 through 17 and an additional $1,600 for children up through age 5.You’d qualify for the entire amount of the larger credit if you are single and your income is less than $75,000. Or, if you are single and file taxes as a head of household, your income must be under $112,500 to qualify for the full benefit. If married and filing a joint return, you’d qualify for the full benefit if your combined income is under $150,000.To qualify for the credit, your child must have a Social Security Number. You can file with an Individual Taxpayer Identification Number, which is available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a Social Security number.But to get the credit, your child must have a Social Security number. A new website from Poverty Solutions at the University of Michigan offers tips about the expanded Child Tax Credit. The IRS is going to set up an Internet portal in the next few months for taxpayers to say whether they want the advance payments.The portal, Luscombe said, will allow taxpayers to provide additional information, such as reporting a baby born in 2021 or a change in marital status that might increase the amount of advance payments to which they are entitled. “Unlike the recovery rebate credit, it appears that if a taxpayer receives too much Child Tax Credit as an advance payment, the excess would have to be repaid as part of the 2021 tax return filing,” Luscombe said. He noted that the IRS is tasked with tracking the age of children to determine if a child is no longer eligible for the Child Tax Credit.How can I get free tax preparation services?IRS Free File at IRS.gov will enable you to use tax software to prepare and file your federal income tax online for free. To qualify, your income must be $72,000 or less. Go directly to IRS.gov to browse all offers. Can I get an extension? Sure, but make sure you pay up what you owe by May 17 in order to avoid interest and possible penalties. See Form 4868. The IRS notes: “You don’t have to explain why you’re asking for the extension.” The extension will give many taxpayers up to Oct. 15 to file their 2020 return. But remember you’re not getting any extra time to pay what you owe the federal government.Filing an extension allows you more time to complete and file a tax return, say if you don’t have all the paperwork in order yet. But remember, you might not want to file for an extension — especially if you have your paperwork — if you have children and can qualify for the Child Tax Credit where you might start seeing some extra money this summer. Contact Susan Tompor via stompor@freepress.com. Follow her on Twitter @tompor. .


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