For the second year in a row, you have additional time to file your federal taxes. On March 17th, the Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. This is to help taxpayers navigate the unusual circumstances related to the pandemic. In the announcement, IRS Commissioner Chuck Rettig stated “Even with the new deadline, we urge taxpayers to consider filing as soon as possible.” Just because the filing date has been pushed back does not mean that is the right move for you.
April 15th is still a relevant deadline to many taxpayers. The moving of the federal deadline for filing does not mean everything due on April 15th moved. Estimated tax payments are still due on April 15th. While 41 states moved their deadline last year to line up with the federal date, some states m ay still have April 15th as their 2020 deadline. Check with your state’s tax administrator to verify when your state return is due.
If your income decreased in 2020, your new return may help you qualify for the most recent stimulus. The Cares Act stimulus was paid based on your 2019 AGI unless your taxes were not filed yet, and in that case, it was based on 2018 AGI. The Continuing Appropriations Act passed in December was also paid based on your 2019 AGI. The most recent legislation that contained stimulus will pay based on your 2020 AGI if you have filed. Otherwise, it will be based on your last year of filing (likely 2019).
If you were not eligible to receive stimulus payments or if your payments were reduced due to your 2019 AGI being too high and you experienced a reduction in income in 2020, filing as soon as possible can put you in a position to receive a stimulus payment as promised in the American Rescue Plan. Filing it soon may put you in position to receive the stimulus sooner. Otherwise, you may have to wait until the 4th quarter to receive the ARP stimulus.
Likewise, your lower AGI may also help you qualify to receive funds from the previous stimulus packages. Although the payouts for the previous stimulus checks used your most recent filing, those stimulus checks were advances on a 2020 tax credit. By delaying filing your tax return, you may not only put yourself in a position to delay the most recent stimulus, but may also delay getting the funds you missed out on in 2020 and early 2021.
Beyond the unique benefits this year for filing early, there are a few evergreen advantages.
Filing early helps prevent identity theft. Filing later gives a prospective thief more time to try to claim a refund in your name. Both the IRS and the FTC encourage taxpayers to file early to cut off this avenue for criminals.
Filing early gives you more time to plan. Preparing your taxes early can give you time to make sure you have pulled together all of the relevant information for your tax return. By not procrastinating to the deadline, you have more time to gather important information, make sure no eligible deduction or write off is missed and consult with your tax preparer. This is much harder to do when you wait to the last minute.
Filing early gives you quicker access to your refund or more time to pay if you owe money. Probably the main reason people generally like filing early is to get a refund sooner. This can mean being able to use the refund money earlier to invest or pay down debt. On the flip side, preparing your return early also gives you more time to gather the money you may need to pay off any money you might owe.
Just because you have more time to file your taxes doesn’t mean you should necessarily take advantage of the later deadline. There are good reasons not to delay. As they say, the early bird gets the worm…or at least a quicker refund.