The clock is ticking for the millions of Americans who have not yet filed their tax returns. And probably for good reason, as this is the first tax year of the Tax Cuts and Jobs Act (TCJA), and there has been a lot of confusion. To help, here are the most frequent questions that have arisen, as well as a bunch of resources:
When is the tax filing deadline? We’re back to the same old April 15th, though due to local holidays, residents of Maine and Massachusetts have until April 16th and those in the District of Columbia can file as late as April 17th.
Are refunds down because of the tax code changes? Earlier in the season, refunds were coming in lower than last year, but through March 29, the IRS says the average refund is $2,873, which is down just 0.7 percent from last year. The new code may be leading more to seek help from the IRS website, as visits to IRS.gov are up 10.4 percent from last year.
What if you under-withheld in 2018? The IRS is providing some leeway by waiving the estimated tax penalty for many who under withheld their estimated tax payments for the year. If you paid at least 80 percent of your total liability through federal income tax withholding, quarterly estimated tax payments or a combination of the two, you are fine. (The usual percentage threshold is 90 percent to avoid a penalty.)
What’s the best way to file? The IRS advises using tax preparation software, because it is the simplest way to file a complete and accurate return. The software guides you through the process and more importantly, does the math for you, which is often how the most common errors occur.
Electronic filing options include IRS Free File for those with incomes of $66,000 or less; Free File Fillable Forms for all taxpayers; commercial software (Turbo Tax, H&R Block, TaxAct); and individual professional assistance, which is best for those with complicated situations, but it is going to be pretty tough to find someone this late in the tax season.
Does the new tax code make it easier to file? That depends on whether you are claiming the standard deduction or you are going to itemize. Each method reduces the amount of income subject to tax. If items like mortgage interest, state and local taxes, qualified medical expenses, and charitable contributions, add up to more than the standard deduction amount, then you will Itemize those deductions on Schedule A of your return.
BUT, The new tax law nearly doubled the standard deduction amount to $12,000 for Singles, $24,000 for Married Filing Jointly and $18,000 for Head of Household, which means that about 90 percent of taxpayers will LIKELY claim standard, making their tax prep more straightforward.
What if you can’t meet the filing deadline? You’ll have company. The IRS estimates that nearly one in ten filers or 14.6 million taxpayers will likely go on extension this year, which would be the largest number of requests ever received in a year.
You can file for a 6-month extension with Form 4868 by April 15th. Otherwise, you’ll face nasty penalties, which can total almost 50 percent of what you owe to your tax bill. Remember: extensions have a major caveat: The IRS gives you extra time to file, but not to pay. You must estimate your tax liability and pay at least 90 percent of it to avoid a penalty.
The extension does not provide you with extra time to make your 2018 IRA or Roth IRA contributions, they’re still due by April 15th. SEP contributions can be made until the October 15th extension deadline.
What if you owe money, but can’t pay in full by the deadline? You should still file on time and pay as much as you can. This will reduce potential penalties and interest charges. If you can’t pay all the tax you owe, there are three IRS options:
(1) Short-term payment plan: You can request additional Time to Pay through the Online Payment Agreement application. The IRS may grant up to 120 days more to pay the bill for those who owe less than $100,000 in combined tax, penalties and interest.
(2) Long-term payment plan: You can apply for an IRS installment agreement, which for a fee, will put you on a longer term monthly payment plan if you owe $50,000 or less in combined tax, penalties and interest.
(3) You can use a Credit or Debit card, but you may have to pay fees.
IRS Free File: Prep and filing software for individuals and families with incomes of $66,000 or less
Volunteer Income Tax Assistance (VITA) who generally make $54,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance
Tax Counseling for the Elderly (TCE): free tax help for those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues
Directory of Federal Tax Return Preparers: Database of return preparers with credentials and select qualifications
Authorized e-File Providers: Database of Authorized e-File Providers who chose to be included.
6-month extension - Form 4868
IRS Online Payment Agreement application
Apply for an IRS installment agreement - Form 9465
IRS Payment with Credit or Debit card