It’s finally Tax Day. The IRS pushed the usual April 15 filing deadline back to July 15 because of the coronavirus pandemic, and not surprisingly, I’ve been getting a lot of questions about finishing up this year’s return and getting started on 2020. Here are the answers.
Q: Do I have to pay taxes on my stimulus payment?
A: Nope. The up to $1,200 adults received (plus $500 for qualifying children age 16 and younger) was actually an advance credit on your 2020 tax return. The amount you got was based on your 2019 income (if you had already filed your return by the time payments were sent out) or 2018 (if you hadn’t.). You’ll remember everyone who earned less than $75,000 received a payment – at which point payments were reduced for $5 for every $100 earned until they vanished at $99,000. If you earned less in 2020 and would have qualified for a bigger stimulus payment, you’ll get that money when you file next year. If you earned more in 2020 and would have qualified for less (or not at all) you won’t have to repay the money.
Q: Where’s my refund?
A: People who receive tax refunds often count on that money as a significant annual windfall – and this year, with unemployment raging, there’s a good chance it’s needed even more. The average refund is running a little under $3,000. But there’s also a good chance that if you didn’t file until recently – particularly if you filed on paper rather than electronically, but we’re hearing about e-filers, too – it’s delayed. The New York times reported that the IRS has a backlog of about 5 million paper returns. The good news is that you’re going to get interest on that refund from April 15 until it’s paid out. The interest rate for the second quarter (which ended June 30) is 5%, and for the third quarter it’s 3%. You may get the interest payment separate from your refund.
Q: I was on an installment plan that was paused due to COVID. Now what?
A: You have to start making payments on installment plans as well as offers in compromise again, starting today. If you were making your payments via direct debit from a bank account and you put that on hold, don’t forget to re-start them. And if, because of coronavirus your current payments are no longer manageable, go to IRS.gov and apply for a revision in your payment plan.
Q: I didn’t make an IRA deposit for this year – is it too late?
A: You can still make it today. IRA limits are $6,000 this year unless you’re 50-plus, and then you can make a $1,000 additional catch-up contribution. If you have a spouse at home who is not in the workforce, they are eligible to contribute to an IRA as well, based on your earnings. You can also get a start on next year’s contribution (hint, hint). You can also still contribute to your health savings account if you have one. The limits for 2019 are $3,500 for individual coverage, $7,000 for family coverage, plus an extra $1,000 if you’re 55 or older.
Q: What if I’m not going to meet the deadline?
A: You can get an automatic 3-month extension by filling out IRS form 4868. Just note, this is an extension to file – it is not an extension to pay. If you owe money (base it on what you paid last year), write a check to the U.S. Treasury today and send it in. Also, if you are self-employed and make quarterly payments, don’t forget that you also owe for the first two quarters of 2020.
Q: Ummm, I don’t have all that money.
A: You can request an installment plan by filling out form 9465. Pay as much as you can, then go on installments for the rest. You’ll owe interest and penalties.
FOR THE LATEST ON HERTAXES
Looking for advice on filling out Form W-4, minimizing the bite Uncle Sam takes out of your pay, whether to itemize or not or other taxing issues? Check out HerMoney Tax Central.
Don’t miss a beat: Subscribe to HerMoney today to get the very latest money news and tips!