THE BEST WAY TO HELP ALL TAXPAYERS 

Is there anything more common sense than extending the April 15 filing deadline for individual income tax returns?

Fortunately, yes.

A year ago, U.S. Treasury decided to delay all April 15-related deadlines to July 15. State elected officials make their own decisions about filing deadlines. Despite the expense and administrative headaches, in the initial, confusing weeks of the pandemic shutdown, they decided that following the federal decision was their best choice. 

This year, let’s take a few minutes to consider how tax agencies can best help all taxpayers, but especially struggling individuals who are suffering the greatest financial pain. 

Extending the April 15 deadline is a complex, time-consuming and expensive proposal for a tax agency, whether the IRS or a state agency, as well as for tax return software developers and others who make up the return filing community. New guidance has to be written and approved. All references to April 15 in the computer code have to be rewritten, including thousands of references to overdue returns, untimely paid refunds, audit periods, statutes of limitations and more. Letters and notices, including those that reference underpaid tax or late returns, must be rewritten (and more software code updates also are required). Taxpayer assisters must be retrained. The list of costly changes is distressingly long.

You may not care whether a tax administrator has these problems. You should care that you, the American taxpayer, ultimately pick up the cost of this unnecessary work. 

You should also care that a tax agency is asked to make these changes while completing all current priorities, including processing refund returns. Current work must be slowed or delayed to make room for work created by a deadline extension. All taxpayers, especially those already overwhelmed, will suffer from this diversion of resources.

There are sectors of taxpayers and accountants who are challenged by the demand to complete returns by April 15. But instead of addressing a legitimate issue with a broad swipe that harms more than it helps, why not take advantage of an existing program that is designed specifically to meet their needs?

All taxpayers can get an extension of time to file a federal income tax return for a full six months simply by asking for it. It’s free. You can do it online or on paper. For most, it consists of name, address and Social Security number. States tend to grant an extension without even requiring a form.

There is special focus today on taxpayers who were unemployed in 2020. Under the American Rescue Plan Act that is expected to become law soon, up to $10,200 in unemployment income received in 2020 by all but the highest income earners will not be taxed by the federal government and also will be untaxed in least half of the states.  
 
However, the bulk of those taxpayers already have filed returns — these are the most financially stressed taxpayers who would have been eager for their refunds, especially if they received an Earned Income Tax Credit, child tax credit or other special tax breaks that tend to increase refunds. 

These taxpayers who already paid tax on $10,200 of their unemployment income already will have to file amended returns with the IRS and some states. They will then receive that overpayment as a refund.

Those who haven’t filed yet have two options: file a return now and an amended return later, or ask for an extension of time to file and wait to file the return itself until the tax agency has updated its forms and systems to accommodate this income exclusion. 

Remember, although any tax due still has to be paid by April 15, there will not be federal tax on the first $10,200 of unemployment income for qualifying taxpayers. That income will not be included in any calculation of tax that is due on April 15. 

U.S. Treasury will make its choice on the federal filing deadline in 2020 based on what the Secretary believes is best for the IRS and for the federal taxpayers. State elected officials will make their choices on their filing deadlines based on what they feel is best for their states.

FTA wants taxpayers to be aware that, if the deadlines remain unchanged, this is because the extension of time to file is an excellent tool that meets citizen needs without creating new problems and without requiring new government spending.

We recommend it as a way to help all taxpayers in this most challenging of years.