Federal Tax News
The IRS extends the Tax Day deadline. Individual taxpayers get extra time to file their 2020 tax returns and pay their taxes because of the pandemic. The IRS announced that the federal income tax filing and payment due date has been extended from April 15 to May 17, 2021.
The automatic extension applies to individuals, including those who pay self-employment tax. No penalties or interest will be added if all taxes due are paid by May 17. Even so, the IRS urges taxpayers to consider filing as soon as possible, especially those who expect refunds. This relief doesn’t apply to estimated tax payments due on April 15, 2021. It also doesn’t apply to state tax payments or deposits or payments of any other types of federal tax.
New law helps provide health insurance to some unemployed people. A 100% subsidy of COBRA premiums for involuntarily terminated employees is part of the recently enacted American Rescue Plan Act. The law establishes the subsidy for certain “assistance eligible individuals” (AEIs) from April 1, 2021, through Sept. 30, 2021.
An AEI is a qualified beneficiary who elects COBRA for a period of coverage within the subsidy period due to the involuntary termination or reduction of hours. The employer (or, in some cases, the plan or insurer) will pay 100% of an AEI’s COBRA premium during that period and will be reimbursed by the U.S. government through a credit against payroll taxes, or for credit amounts exceeding payroll taxes, as a refund of an overpayment.
Eligible Americans are receiving payments authorized by the new American Rescue Plan Act. The IRS is sending the third round of Economic Impact Payments (also sometimes referred to as recovery rebates) to eligible taxpayers via direct deposit or paper checks. So far, approximately 90 million payments have been made.
The IRS calls these payments “EIP 3” and they differ from EIP 1 and EIP 2 in a few respects. For example, the amount of EIP 3 will be larger for most eligible recipients as they’ll get $1,400 per person, including for all dependents claimed on their tax returns. And unlike the first two rounds, EIP 3 isn’t restricted to children under age 17. Eligible families will get payments based on all qualifying dependents claimed on their returns, including college students, adults with disabilities, parents and grandparents.
There may still be time to reduce your 2020 tax bill if you’re eligible for a deductible traditional IRA. Taxpayers of all ages may be able to claim deductions on their 2020 tax returns for contributions to their IRAs made through April 15, 2021. This is true even if you file your tax return before making the contribution, as long as the contribution is made by April 15, 2021.
For 2020, the maximum IRA contribution is $6,000, or $7,000 for those age 50 or older by the end of 2020. Previously, taxpayers could only contribute to an IRA until age 70 1/2. That limit was removed in 2020. Contact us with questions or learn more about eligibility here: http://bit.ly/38yJfWQ
Ex-wife seeking “innocent spouse relief” loses in court. Spouses filing a joint federal income tax return generally are both liable for the tax owed. But taxpayers who qualify may seek innocent spouse relief from joint liability.
In one case, a wife was denied relief relating to tax returns her former husband filed for their event rental business. The U.S. Tax Court found her claim didn’t show that her ex-husband hid information from her and revealed that she had actual knowledge relating to their tax returns, and she signed them. Also, her work history revealed she had familiarity with bookkeeping. Countervailing facts showed that joint liability would cause her economic hardship, but these facts didn’t outweigh her liability. (Rogers, TC Memo 2021-20)