The deadline to file taxes in the U.S. is Monday, May 17. Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Service, spoke with Lana Zak on CBSN about what you need to know before you file, and the tax credits you should consider.
LANA ZAK: Time is running out to file your taxes. The deadline is Monday. The US government extended the deadline a month because of the COVID-19 pandemic. But there are some factors this year that could impact your returns and refunds.
For more on this, I want to bring in Mark Steber. He is the chief tax information officer at Jackson Hewitt Tax Service. Mark, thanks for being here on behalf of all the procrastinators among our viewers. What do we need to know about filing for an extension this year?
MARK STEBER: Well, first of all, you're not alone. There's about 30 million folks who creeped in right about the last minute each and every year. You are certainly right. They extended the season one extra month. But there's always been an automatic six month extension if you file a Form 4868 and a counterpart for your state if you have an income tax.
It's important to remember that if you file an extension, that's an extension of time to file your paperwork up until October 15. You still must pay all taxes do or, at least, the majority of the tax is due by the deadline midnight on the 17th or run the risk of late filing penalty, late payment penalty, and failure to pay penalties.
So get your extension in. But it's easier probably just to get your tax return done. You've probably got all of your information. So there's no real reason to wait-- plenty of hours, plenty of help out there, yeah, and a little bit of time left.
LANA ZAK: All right, well, how will the stimulus payments affect returns this year?
MARK STEBER: Well, you know, all three have their different impacts. The first two came out. They will be reconciled on this tax return, your 2020 tax return. And it's important for your viewers to remember that those payments are not taxable, although, we did a survey towards the end of the year. And about 40% of our respondents thought they were taxable.
So don't put those on your tax return as income. And another important point to remember is if you did not get all of your stimulus-- you moved-- you didn't have the child that you adopted or fostered or had during 2020-- so the advance payment didn't make it.
Your 2020 tax return is also where you will recover any additional amount of stimulus or the economic impact payments as a recovery rebate credit. So not taxable. But that doesn't mean you can simply ignore it, especially if you did not get all of your money.
LANA ZAK: That's really important information. Those stimulus payments were not in fact taxable. I want to ask you also about the American Rescue Plan, which passed this year, because it made some retroactive changes for people who claimed unemployment benefits in 2020. Can you take us through those?
MARK STEBER: Well, there were a lot of tax provisions in that American Rescue Plan Act. And some of them, as you mentioned, were retroactive to the beginning of last year, kind of a new bar in late legislation. But it was very pro-taxpayer legislation-- very good legislation.
As you mentioned, unemployment benefits are complicated each and every tax year and in 2020, more so than most. The first thing that taxpayers need to know is typically, unemployment benefits are fully taxable, much to some people's surprise when they start doing their taxes.
And this year, they started off as taxable income because that was the rule. Jump ahead into March with the American Rescue Plan Act, the first $10,200 of unemployment benefits were changed to exempt. And so if you'd already filed your tax return and you had unemployment benefits, that was the rule you probably paid taxes on them.
If you're filing now, it's important to remember they're not taxable. And so there's a new form, a new schedule, and some new protocols to go to not put that money on there. And that's a very important break. But if you've already filed, the IRS is going to work on that and fix it automatically for you. And checks are going to start coming out this week.
So if you put unemployment on your return and you've already filed, the IRS is going to fix that for you. If you've not, it's important to leave off $10,200 per taxpayer, 20,400 if you're married on your 2020 tax return one year only on this change.
LANA ZAK: Well, Mark, what other tax credits are out there that people might not know about?
MARK STEBER: Well, there were some great credits that have always been in place. The earned income credit-- a little over $6,000 maximum-- the child tax credit. And we'll talk about that one in a moment because it's a very nice credit, about $2,000 historically jump-started with that American Rescue Plan Act up to a maximum of $3,600 for 2021. And some of those payments maybe even starting out early.
There was also a provision put into place that said, if you're getting earned income credit or child credit or several other credits that are income-limited, you not only can look at the current year income to see how much credit you get, but your income for 2020 might have been reduced for all the reasons of the pandemic.
You can look backwards to tax your 2019 and use the higher of the two incomes and calculating your credits for 2020. So a lot of movement, a lot of change on credits. But they range from children credits to earn credits to dependent care credits to education credits often overlooked. So a lot of things to look, a lot of things to look for, and some things to watch out for that might be bigger going into this next year, which is already about half over.
LANA ZAK: Well, there's also potentially other deductions that people aren't used to taking in terms of working from home that people may be looking at this time around. What can you tell us about that?
MARK STEBER: Yeah, the pandemic has completely changed the work environment for the majority of Americans. Many people are working at their house because of their business being closed or just out of an abundance of caution or for the convenience of their employer.
Now, having said that, in the tax law for decades, there's been a home office deduction available for taxpayers who work out of their office at home. Now, the tricky part of this is not every taxpayer who's working at home gets that benefit. Only taxpayers who have a home-based business full-time or part-time or for a spouse qualify for the home office deduction.
It was available in prior years. But that was done away with a couple of years ago. So if you're just working at home, you don't necessarily get a big tax break for that for your home office, for your computers, for your printer. But you might if you have a business based out of your house.
And it's an area of great confusing for a lot of people because they're incurring lots of cost. They're working at home last year and into this year. They've heard of the home office deduction. But not everybody gets it. And if you don't understand it completely, it's probably best to talk to a tax professional to make sure you don't trip up and put it on there when you don't deserve it or you leave it off. And, in fact, you're leaving off tax benefits.
LANA ZAK: You know, Mark, before I let you go, a lot of people have said that they've been waiting a long time for a refund. Fred Goldberg, former commissioner of the IRS was on CBSN Thursday. And we talked to him about those delays and troubles that people have been having getting through to the IRS. Here's what he had to say.
FRED GOLDBERG: It can take seven months to resolve a simple little correspondence issue. But if you underinvest in an institution for 10 years, that's the consequence. Another consequence is if the institution doesn't change how it does business because the world changes. These are huge challenges. But the upside is immense.
LANA ZAK: So what is taking so long this year? And what can be done to help clear the backlog?
MARK STEBER: Well, it's a complicated situation as the man talked about. And it's a transition of over 10 to 20 years of underfunding, understaffing by design by our elected officials. You couple that with the challenges that the IRS has just like any business.
Offices are closed. The processing centers have people working from home and can't access important and very sensitive and confidential data files to help navigate tax returns. Even call centers are challenged. You combine that with a half a dozen other unfunded mandates that the IRS has had to take on from Affordable Care to the stimulus payments to the new child tax credit advanced payments to just everything else under the sun that's thrown into our complicated tax administrative network. It puts a completely different type of a burden on the IRS.
So they're behind in a lot of degrees. They've been very transparent about that. Refunds are taking longer. And the call centers are overwhelmed. You can wait for hours. But the IRS is working through their backlog.
The president just spoke at his recent address and is planning to fund the IRS to the tune of $80 billion over the next 10 years. And that's about time because complicated taxes require complicated support. And tax pros are a great help. But the IRS needs to be staffed. They need to have technology. They need to have competitive salaries. And they, frankly, just need to get caught up with the times as the gentleman said.
And so I think there's hope on the horizon. But right now, it's a big challenge. And 2021 is going to continue to get challenged. But there is hope afoot with funding, staff hiring, and the greater technology base. And all the good tax companies support that.
LANA ZAK: Mark Steber, thank you.
MARK STEBER: Good to be here. Thank you for having me.