What will likely be a challenging tax season kicked off Feb. 12 as the Internal Revenue Service finally began processing 2020 federal income tax returns.
The tax season started about two weeks later than last year, reflecting the extra time the IRS said it needed to program and test its systems after last-minute tax law changes in Washington provided a second round of Economic Impact Payments and other pandemic relief benefits.
“We are ready,” said IRS Ken Corbin, the new IRS chief taxpayer experience officer, a newly-created position that is designed to better help the agency address taxpayer problems.
Corbin also serves as commissioner for the IRS wage and investment division.
The IRS is encouraging people to avoid the possible headaches and holdups that can take place when you’re filing a paper return during the pandemic. Corbin said choosing to file electronically is the safest way to file a return and the quickest way to get a refund.
As for those stimulus payments, the IRS had some thoughts there too.
The likelihood of a third stimulus payment of up to $1,400 for individuals is on the table now. If all goes smoothly with passing the necessary legislation, some speculate that payments could be out as early as mid-March.
Yet buzz is already building on how one might game that system.
If you lost a job and had a sizable drop in income in 2020, some speculate that you’d want to file your 2020 federal income tax return early this year so that the IRS can base the next stimulus payment on your low income last year. It’s one way that some might get a bigger stimulus check, possibly.
But Corbin cautioned that people don’t want to rush into filing a return, just to file as soon as possible. The best bet, he said, is to avoid any mistakes and only file when the correct paperwork and information that you need is available.
If you don’t have the correct W-2 forms or 1099s, for example, the return is likely to face delays in processing.
“We always encourage taxpayers to file the most accurate return they can,” Corbin said.
The tax filing deadline is April 15 this tax season. Corbin said the IRS is not anticipating extending the deadline as it did last year due the widespread shutdowns early in the pandemic. Last year, the IRS extended the deadline all the way until July 15.
Here are a few tips to consider as you prepare to file those returns:
• If you collected state unemployment but did not pay enough income taxes into the system last year, you could face a penalty if you owe more than $1,000 in federal income taxes on your 2020 return.
The IRS’s Corbin said Feb. 11 that the IRS does not have current plans to issue “blanket waivers” to those collected unemployment benefits but did not have enough taxes withheld.
But Corbin left open a door that some taxpayers may be able to request a waiver of such penalties individually. He noted that “reasonable cause” waivers can be granted on a case-by-case basis. He said the IRS will be monitoring the situation involving taxable jobless benefits and any possible penalties relating to the lack of withholding enough in taxes throughout 2020.
• Triple check your paperwork.
While mail service seems to have improved in some areas, some people are still seeing mail delays.
So the IRS is reminding taxpayers to make absolutely sure they have all of their tax documents, including Forms W-2 and 1099, before filing a tax return. Review last year’s tax return and consider your sources of income in 2020, especially if you did freelance jobs.
Some forms may be found online through an employer or bank.
“When other options aren’t available, taxpayers who haven’t received a W-2 or Form 1099 should contact the employer, payer or issuing agency directly to request the missing documents before filing their 2020 federal tax return,” the IRS said.
Corbin said taxpayers should try to resolve issues first and not contact the IRS until late February if there continue to be problems with these forms, many of which should have been received already.
• Crooks are still out to file phony tax returns.
As part of a hot scheme in 2021, identity thieves increasingly are targeting tax professionals by sending an email that appears to be from the IRS.
The phony email refers to “IRS Tax E-Filing” and verifying key e-file information.
Crooks say things like: “In order to help protect both you and your clients from unauthorized/fraudulent activities, the IRS requires that you verify all authorized e-file originators prior to transmitting returns through our system. That means we need your EFIN (e-file identification number) verification and driver’s license before you e-file.”
If tax pros fall for this one, the IRS notes that fraudsters can use information that’s disclosed to them to file fraudulent returns by impersonating the tax professional.
The email attempts to bait tax preparers into opening a link or attachment. The threat is that if they fail to do so, their ability to e-file would be disabled.
Yet these links or attachments are set up to steal information or to download malware onto the tax professional’s computer.
Individuals are reminded to be wary of unscrupulous individuals who may offer to prepare your taxes but also steal important ID information from you — or part of your tax refund from you — along the way.
Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at [email protected]