October tax deadline looms for millions of late filers: Here are the important dates

Kicking the can down the road by requesting a six-month extension for filing your taxes — as a staggering, nearly 19 million taxpayers did this year — means that plenty of people are looking at an Oct. 17 deadline for filing their federal income tax returns.

The Internal Revenue Service has noted repeatedly that taxpayers "can file electronically at any time before the October deadline and avoid a last-minute rush to file."

Michigan taxpayers face the same Oct. 17 deadline for their state income tax returns if they requested an extension.

And there's another key deadline of Sept. 30 for some select federal returns that need to be filed for the 2019 and 2020 tax years to avoid any penalties for a failure to file.

"Yes, we are busy. It's not as bad as the first round of busy season, but we're still pretty busy getting the individual returns prepared," said Robyn Fuller, a certified public accountant and founding partner for J&F Advisors, a small accounting firm in Detroit.

The boutique accounting firm has a discretionary surcharge to discourage some clients from waiting too long to get their taxes done, say, like the last week before a deadline. Not all clients face the fee, which can be about $50 or more, Fuller said. Any extra fee will depend on the complexity of the return and is not charged across-the-board.

Those filing in the next few weeks will want to make sure to have all their paperwork in hand, especially for any payments they received in 2021 for the advance child tax credit. These advance payments aren't taxable but they are an important part of calculating your tax refund when you file a 2021 return.

You also want to know the exact amount of money that you received for stimulus payments in 2021.

"If those amounts don't align with what the IRS has in their records, that can delay in processing their return," Fuller said.

If you're filing a return now, it's best to file electronically, instead of by paper. While the tax season went somewhat smoothly for many, some who filed paper returns by the April deadline continued to wait for tax refunds in late September. Others only saw their money recently.

As of late June, the IRS finally completed processing all of the originally filed Form 1040 paper returns without errors that it received in 2021. It's a first in, first out process. Once the returns received in 2021 were processed, the IRS could move onto the paper returns received this year.

The accumulation of paper returns has been a troublesome development since the COVID-19 pandemic shutdowns shook up the system.

More: Information on child tax creditHow to understand what information is needed

Why did so many people wait to file tax returns?

Every year, a group of people just naturally drag their feet past April and file Form 4868 to request the automatic six-month extension. By filing that form, you get more time to file a completed tax return, not more time to pay your tax bill. You want to pay any amount due — or pay as much as you can — by the April deadline to avoid interest and penalties on what is owed.

This year, the numbers filing for extensions exploded to record levels as some taxpayers hoped the IRS would extend the deadline, others worried that some last-minute tax changes could be around the corner from Congress, many weren't sure how to calculate the child tax credit or the recovery rebate credit and many just felt so overwhelmed they needed more time to get things right.

"COVID really changed things as far as how people file, the pace at which they're doing it. It just changed the nature of the tax law too because so many credits became available. So many changes were implemented during the same time that COVID was happening," said Fuller, who is one of 15 professionals nationwide serving on the Intuit QuickBooks Partner Council. Intuit, a financial technology company, owns a variety of products, including TurboTax, Credit Karma and Mint.

Taxpayers need to realize that even though they extended the deadline until October for filing a completed return, Fuller said, they're still required to pay what they owe by the April deadline.

Mark Steber, chief tax information officer at Jackson Hewitt Tax Service, said no one really has a firm answer on why so many extensions were requested for 2022, far above even 2020 and 2021.

In typical years before the pandemic, he said, about 9 million to 10 million people would request an extension each year.

Nearly 11.6 million taxpayers filed Form 4868 in 2020 and an estimated 13.56 million filed for an extension in 2021.

The IRS said its latest figures through Sept. 23 showed that 18.95 million extension requests were filed in 2022, including nearly 16.4 million that were electronically filed.

Many people, Steber said, likely had crossed their fingers and hoped the IRS would suddenly push the April tax deadline forward by a few weeks or months, much like the IRS did in 2020 and 2021. In 2021, the IRS extended the tax filing deadline to May 17.

Taxpayers bet wrong in 2022. This year, the deadline remained April 18 for most filers.

Others, Steber said, might have waited well into April but then found it hard to get all the right paperwork in place to meet the April 18 deadline. Some tax professionals — who know too well that delays will be triggered if tax filers "guess-timate" their information — encouraged making an advance payment and filing for an extension when accurate numbers weren't available. CPAs faced a backlog, too, and had difficulty reaching the IRS by phone to address specific issues for individuals.

Other issues cropped up, too. Some taxpayers couldn't get the help they needed through the IRS or their tax situation changed dramatically so they filed for an extension until October.

“It could be more people owed from self-employment income and crypto gains," Steber said. "Or it could be a new pattern of less urgency. Time will tell."

Why it's important to make the Oct. 17 deadline

Don't try to go past the Oct. 17 deadline — which is technically Oct. 15 but delayed until Oct. 17 this year because the 15th is a Saturday.

“If you filed an extension and you don’t file your return, your penalty and interest calculations are grandfathered back to the original April 18 due date," Steber said.

At this point, documents should be in taxpayers hands, including W2, 1099s, K-1s for investments in partnerships. Double check your numbers and information.

More: Why you must review returnsTax troubles arise for some

Any missing information or mismatched information on IRS systems can be expected to trigger trouble, including the delay of any refund.

Some tax filers figure they can come close to a number, say what they think they received in stimulus cash, and imagine that the IRS will fix it if necessary. But that's not a good bet, given all the problems the IRS has been facing. Steber calls some tax troubles "self-inflicted delay" when tax filers don't provide exact numbers or information.

The IRS noted that taxpayers who are filing now want to avoid mistakes when claiming the earned income tax credit, the child and dependent care credit, the child tax credit and the recovery rebate credit.

"In 2022, the message is clear — you need to be accurate," Steber said. "There are no simple tax returns in the pandemic."

Why some want to meet a Sept. 30 deadline

In August, the IRS and the Treasury Department announced an unprecedented waiver of the failure to file penalty for certain taxpayers for who need to file returns for tax years 2019 and 2020.

The move recognizes that many taxpayers struggled after job losses and health problems hit during the COVID-19 pandemic, which began in early 2020.

IRS offices closed for a long time. Tax professionals faced challenges and some had difficulty working remotely. The IRS was "virtually unreachable by phone," according to the National Taxpayer Advocate.

The IRS has a backlog of tax paperwork to address as it attempts to get back to "normal operations" in 2023.

Edward Karl, vice president of tax policy and advocacy for the American Institute of CPAs, said the professional group has advocated for this type of relief and more for taxpayers who face problems as a result of the IRS backlog and delays.

"We've been pushing for broad relief," Karl told the Detroit Free Press.

Those who don't qualify for the failure to file waiver include cases where a fraudulent return was filed; situations where the penalties are part of an accepted offer in compromise or a closing agreement, or cases where the penalties were finally determined by a court.

The IRS did not waive the failure to pay penalty.

The IRS began accepting and processing 2021 federal income tax returns on Jan. 24, 2022. But millions of taxpayers filed for an automatic six-month extension, which gives them until Oct. 17, 2022, to file the 2021 return.
The IRS began accepting and processing 2021 federal income tax returns on Jan. 24, 2022. But millions of taxpayers filed for an automatic six-month extension, which gives them until Oct. 17, 2022, to file the 2021 return.

To qualify, though, any eligible tax return for 2019 and 2020 must be filed by Sept. 30, 2022. Every effort should be made, according to experts, to file those returns electronically, not by paper.

Nearly 1.6 million taxpayers, according to the IRS, will automatically receive more than $1.2 billion in refunds or credits if they already paid the penalties that were later waived. The IRS said many taxpayers can expect to see this money by the end of September.

The failure-to-file penalty is costly — so it's important to try to avoid it.

Taxpayers are generally looking at paying an extra at 5% of the tax liability for each month the return is filed late, up to a maximum of 25%. If you owe $10,000 in income taxes, the failure to file penalty would add up to $500 per month, up to a maximum of $2,500 total in this example, according to an example provided by the National Taxpayer Advocate.

The AICPA applauded the move to waive the failure to file penalties for this group, noting that the limited penalty relief ultimately will save the Treasury and the IRS valuable time and resources by encouraging many taxpayers to act on their own. The AICPA requested that the extension for filing be moved until Dec. 31, but the IRS was sticking to the Sept. 30 deadline as of Tuesday. Another effort by House members and U.S. senators calls for moving the Sept. 30 deadline until mid- to late-November, noting the September deadline is "simply too soon for some taxpayers."

The AICPA has noted that many taxpayers may have mailed payments, but other issues, such as the IRS backlog and mail problems, contributed to a situation where the IRS failed to process the returns or payments in a timely way.

The AICPA also wants additional relief that would cover more taxpayers and situations, other tax years and offer relief for the penalty for failing to pay.

IRS Commissioner Chuck Rettig said the IRS understands the concerns being raised by the tax community and others about the Sept. 30 penalty relief deadline. But he noted in a statement that Sept. 30 strikes a balance, given the agency's need to plan for the upcoming tax season and its ongoing work on the inventory of tax returns filed earlier this year.

"It is critical to us to not only provide important relief to those affected by the pandemic, but this deadline also allows adequate time to prepare our systems and our workstreams to serve taxpayers and the tax community during the 2023 filing season."

It's still unknown how well the IRS is dealing with its backlog at this point.

Karl said the returns that will be filed to meet the Oct. 17 deadline will contribute to add more paperwork to the IRS system, though it is unknown how many returns will involve paper and how many will be electronically filed.

Contact Susan Tomporstompor@freepress.comFollow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: October tax deadline creeps up on millions who got an extension