Tax Day is here: Why do I owe so much money? How do I get a tax extension?
Did you drag your feet a bit to file your taxes? Oddly enough, even more people did procrastinate considering that nearly 2 million fewer federal income returns were filed through April 7, compared with the same time last year based on the latest IRS data.
If you did wait, here's your last-minute warning. Taxes are due by midnight April 18. Oddly enough, it's the same date as last year.
Not the same day, mind you. April 18 falls on a Tuesday this year, not a Monday like last year.
Most often Tax Day is April 15. But in a quirky turn of the calendar, April 15 fell on a Saturday; income tax deadlines aren't on weekends. And Emancipation Day was observed on Monday, April 17, as a local holiday in Washington, D.C., and hence Tax Day ended up on Tuesday.
About 101.3 million federal income tax returns were filed this year through April 7, but that's down 1.9% compared with the same time last year.
“It is strange that people have been procrastinating this year, but it’s starting to become a trend if you look at the data the IRS releases weekly each year," said Mark Steber, chief tax officer at Jackson Hewitt Tax Service.
Most often, a huge rush of early filers submit their returns in late January and February. Then, the flow of returns becomes fairly steady. During the final days, the Internal Revenue Service is looking at a huge push.
It's estimated, Steber said, that some 40 million to 45 million tax returns will be filed in the final few days and last hours leading up to the April 18 deadline.
Many consumers faced financial challenges in 2022 after inflation drove up the cost of rent, utilities, gas for the car and groceries. "Those who needed their refund immediately filed earlier this year," Steber said.
Often, he said, people will have their tax preparation fees deducted from their tax refunds. But if they aren't getting a refund — or owe money — they might do their own taxes or delay getting them don't because they don't have the money early to get their taxes prepared.
More people, he said, seem to be moving into the "balance due" category and not getting a refund.
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Why do I owe money?
"Everybody's situation is different," Steber said, "but lower withholding, lower credits, more side gig and self-employment income and more 'other types of income,' including virtual currency, have led to a lot more people having a balance due."
Tax filers are no longer able to tap into temporary, pandemic-related tax breaks that helped them owe less money or see a tax refund last year.
We're looking a the elimination of the generous advance child tax credit and the recovery rebate credit on 2022 returns.
On top of that, the child and dependent care credit falls back to a maximum of $2,100 on the 2022 tax return instead of $8,000 for 2021. If you paid for child care, for example, those who qualified based on income could have received up to $4,000 in 2021 for day care expenses for one child or up to $8,000 for expenses relating to two or more children. Income limits apply to receive the credit.
Many people don't pay much attention to whether they're having enough taxes withheld throughout the year. But they should do so — or they're risking being shocked some on Tax Day.
Many times, people owe money because they didn't have enough tax dollars withheld from their paychecks, said Faye Ball, an enrolled agent who owns The Taxlady & Co. in Wyandotte.
"I am counseling more clients on submitting a new W-4 to their employers to balance the take home pay and the tax return," she said Monday.
Maybe you changed jobs and then used a new W-4 form to withhold taxes but you didn't have as much taxes withheld to cover the taxes due.
The W-4 withholding forms were tremendously streamlined in 2020, Steber said, to give people more money. "It had the unintended consequence, though, of reducing the amount that people had in their withholdings."
The form can be confusing with its worksheets and tables, as well.
The Internal Revenue Service has an online tool called a "Tax Withholding Estimator." Taxpayers may want to update their withholding if they owed too much in taxes, would like a bigger refund next year or if something in their life changes such as they get married, divorce or have children.
Steber said some who owe more money now have other sources of income — such as a gig job or gains from the sale of stock or virtual currency — and didn't pay enough in estimated taxes or have enough withheld.
Roughly 40 million people have some side hustle going on, according to various estimates, and they often owe taxes on that income. Last year, Steber said, some of the shortfall in what people withheld or didn't pay during the year to cover gig income might have been offset by higher tax credits but those tax breaks are no longer there on the 2022 return.
Why is my refund smaller?
Taxpayers were warned early on that they they should not bank on receiving a windfall through their tax refunds this year. Super-generous tax credits that were designed to shore up the economy after the pandemic-related fallout expired and don't apply to 2022 returns. Don't look to find, for example, a recovery rebate credit on a 2022.
The average tax refund was down 9.3% through April 7, as tax refunds this year hit an average $2,878. That's off by about $297 from the same time a year ago.
The IRS has issued about $198.87 billion in tax refunds so far through April 7, down 10.6% from a year ago.
More: IRS cuts phone waits, promises better service and crackdown on evaders
Don't forget
Be sure to check your math and re-check the Social Security numbers listed on the return to make sure everything is accurate. Mistakes can easily happen in a last-minute rush.
Also don't forget to file Michigan income tax returns and city of Detroit returns, if necessary, by April 18, too.
Sarah Shannonhouse, manager for Tax Practice & Ethics with the American Institute of CPAs, said taxpayers and tax professionals should keep in mind that if a taxpayer mails a payment or tax return to the IRS that is postmarked by midnight on the date due, the payment or tax return will be considered timely. That's true even if the return is received by the IRS a week later.
While most people want to e-file that return for speed, some last minute filers could have reason to mail a return.
More: 2023 tax season shows some hope as IRS answers calls, refunds roll out on time
What if you just cannot make the deadline?
Even if you've dragged your feet, you want to make sure you file an accurate tax return.
If you think you must delay, file Form 4868 for an automatic six-month extension until Oct. 16.
"It’s an extension of time to file paperwork only," Steber said. "It is not an extension of time to pay."
You want to be aware of any interest and penalty charges for failing to pay what you owe by April 18.
Regardless of your income, it's possible to easily request an extension to file online by using IRS Free File at IRS.gov.
Can you find help on April 18?
It might be tough but many tax professionals remain on the job.
"We are working hard to serve as many people as possible before the end of the day tomorrow (Tuesday)," said Matt Hetherwick, director of individual tax programs for the nonprofit Accounting Aid Society in Detroit.
He noted that the nonprofit group had more than 550 appointments booked for Monday and Tuesday.
"Anyone that thinks that they may owe and are unable to get assistance from a preparer, should file an extension with the IRS," Hetherwick said. Use IRS Form 4868. That extension must be postmarked by Tuesday or can be e-filed.
Another option is to use software to prepare your return. Free filing software can be found, Hetherwick said, at the Accounting Aid Society website under the box named "Do It Yourself" and can be used if your if income was less than $73,000 in 2022.
Or see "Free File" at IRS.gov if your adjusted gross income is less than $73,000.
Three words that can be used to describe this tax season, Hetherwick said, are "back to normal."
The tax code reflects more normal, pre-pandemic rules. "And we saw a lot of more traditional forms of income at the tax sites," Hetherwick said. "Conversations at the tax sites were more about what people were doing and have been doing versus what they couldn't do because of the pandemic."
Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer.
This article originally appeared on Detroit Free Press: Tax Day is Tuesday: Why do I owe money? How do I get an extension?
