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Extension doesn't entirely wipe worry for taxpayers who may owe the IRS

Posted at 7:04 AM, Apr 14, 2021
and last updated 2021-04-14 08:04:51-04

The IRS extended the tax filing deadline to May 17 because the pandemic has been financially tough for so many. The purpose was to give taxpayers more flexibility and time to figure things out.

"I'm hoping to get a refund," said taxpayer Rosalind Cox, who was taking advantage of free tax preparation assistance also known as VITA (Volunteer Income Tax Assistance Program) at Milwaukee's Social Development Commission.

"I had to pay last year and I got a smaller amount as far as the state goes too," Cox said.

The extension hasn't entirely wiped the worry for some who expect a bill rather than a refund.

"What the IRS is letting all the taxpayers know is that if you think you owe, estimate what you owe and pay them something so that way, once you get your tax return complete, you're in line with what you owe and you've already started the payment," said Diane Robinson, VITA Senior Service Manager at the SDC.

If taxpayers still need more time to submit returns, they can request an extension until October 15, but that doesn't give you an extension of time to pay the taxes you owe. Also, some taxpayers who make quarterly estimated tax payments still have to make the April 15 deadline.

If you miss deadlines, Robinson explains there are consequences.

"We're talking pretty stiff penalties, but the bigger penalties that I think a lot of taxpayers are going to be faced with is surrounding this unemployment," she said.

Robinson is talking about a new tax break as part of the American Rescue plan where you don't have to pay tax on unemployment compensation of up to $10,200 earned in 2020 if your adjusted gross income is less than $150,000.

"A lot of times taxpayer are looking at it, 'Oh, it's not over $10,200, it's not taxable, I'm not even going to include it.' You still have to report it and let the software make the necessary deductions of what you don't have to pay," Robinson explained.

"Anything over that, you are taxed on it and if you don't bring that into your tax preparer, it doesn't get reported. There's a substantial penalty for underreporting your income during the course of the year and that penalty is on the upside of thirty percent," she said.

Certified tax preparer, Alicia Meraz with La Casa de Esperanza realizes the financial pressure taxpayers are feeling. She's showing clients who have to pay the IRS how to avoid owing in the future.

"Especially this year with the pandemic, it's made it a lot harder for people to pay their bills and stuff so there are more people worrying about those things," Meraz said.

Meraz makes sure they have the right withholdings during the year. If they owe, she encourages them to get on a payment plan.

"I usually tell people that it's better to right away call them and set up a payment plan," she said.

"One of the biggest pieces of advice almost all of our tax preparers had commonly recommended is organization with your tax documents. Keeping track of tax documents you receive in the mail, making sure you open and look at them to understand exactly what they are before going to get your taxes prepared. This avoids confusion between the taxpayer and tax preparer. One thing you can do to keep organized is keeping track of any income, expenses, etc., you have during the year on paper or in an excel spreadsheet. Another thing that is good to do is to keep copies of your prior years of tax returns, it's good to compare them to the current year to make sure we don't miss anything you might have forgotten about for the current tax filing year," Meraz continued.

The IRS says any taxpayers dealing with an unresolved issue causing financial hardship can reach out to the Taxpayer Advocate Service.

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