FEDERAL TAX DEADLINE EXTENDED TO MAY 17
Who It Affects…What’s Unchanged
Given the challenges of the pandemic, the IRS has extended the 2020 federal income tax filing date for individual taxpayers from April 15 to May 17. Self-employed taxpayers are eligible as well. This extension is automatic and requires no action for taxpayers to qualify. So, if you owe taxes for 2020, you have until May 17, 2021, to pay without interest or penalties.
Speaking of interest and penalties, individual and self-employed taxpayers will avoid either or both by paying taxes due by May 17. Late payments will accrue penalties and interest on remaining unpaid balances.
The May 17 extended deadline also applies to individuals making 2020 contributions to:
• IRAs and Roth IRAs;
• Health Savings Accounts;
• Archer Medical Savings Accounts;
• Coverdell Education Savings Accounts.
• Payment of tax on amounts from 2020 distributions from IRAs or workplace-based retirement plans.
Additionally, the extended federal deadline applies to schedules and other forms filed with a Form 1040.
Note: The Virginia state Department of Taxation also extended the original May 1 deadline to May 17.
Excluded from the extended deadline and subject to the April 15 date are:
• Federal returns for non-individual taxpayers, e.g. estates, trusts, corporations, businesses.
• Quarterly estimated payments for self-employment income, dividends, and rental income.
• Gift tax returns;
• Individual or entity taxpayers that file an annual Report of Foreign Bank and Financial Accounts (FBAR).
Gentle reminder: May 17 is just around the corner. So, if you haven’t met with your tax advisor for 2020 tax filing, there’s still time to do so and avoid penalties and interest for filing late.
THE NEW CHILD TAX CREDIT
What We Know…What We Will Know
Your family may be one of the millions of American households that have been hit hard financially by the pandemic. If so, in addition to stimulus relief afforded to taxpayers in 2020, there’s additional positive news for qualifying families under the $1.9 trillion-dollar American Rescue Plan…a new and improved Child Tax Credit for 2021.
New, Increased Payouts
Of course, there are qualifying details, but before we go there here is a summary of the payouts for those eligible. The revised rules temporarily increase the child tax credit for the 2021 tax year. The bump is from the previous $2,000 limit to $3,000 per child age 6 to 17 … with an extra boost to $3,600 for children 5 years old and younger. For dependents over 18, the credit will be $500.
Note: The amount of the credit is determined by the child’s age on December 31, 2021.
Beginning this July, qualifying households will receive periodic payments of half the total credit amount. Payments will be deposited to the taxpayer’s bank account for the months of July through December … $300 for each child under age 6 and $250 for each child ages 6 to 17. The remaining half to be paid upon filing their 2021 tax return next year.
Similar to last year’s C-19 stimulus checks, the Child Tax Credit is based on the taxpayer’s adjusted gross income. To qualify for the remaining half the following AGI amounts in 2021 will apply:
• Single taxpayers - $75,000 or less;
• Head of household - $112,500 or less;
• Married filing jointly - $150,000 or less.
Important! There is a phaseout provision. For every $1,000 a taxpayer earns over the AGI limit reduces their credit by $50. That can be significant. For example, a single filer declaring an AGI of $85,000 will forfeit $500 per child.
IRS Helps You Qualify
To accelerate financial relief to taxpayers, the IRS will review your 2020 income tax return to determine qualification. For those who have not yet filed for 2020, the IRS will accommodate by basing qualification on the 2019 return. In the event a taxpayer’s 2021 income exceeds the qualifying amounts, any excess credits will be refunded to the Treasury when filing their 2021 return.
And If You Don’t Qualify?
The new Act does not negate the Child Tax Credit provided for in 2017 under the Tax Cuts & Jobs Act. The existing Child Tax Credit is still available! Single taxpayers with an AGI of $200,000 or less or married taxpayers filing jointly with an AGI of $400,000 or less will still qualify for a $2,000 tax credit for each child under age 17.
What Is Yet to Be Learned
The launch for the payouts is scheduled for July 1. The IRS is creating a portal to assist taxpayers with questions and further guidance. That may or may not happen by that date. IRS Commissioner Charles Rettig stated that, “We will launch by July 1 with the absolute best product we are able to put together.” So, stay alert for news of the new portal and stay abreast of your qualifications for the increased credit.
You’ll likely have questions regarding your specific circumstances, so be sure to give us a call or drop an email. We’ll respond promptly.