Despite Tax Day extension, experts say millions may struggle to pay their tax bills

tax deadline
Posted at 1:50 PM, Mar 31, 2021
and last updated 2021-03-31 17:02:20-04

The deadline to file your taxes has been extended to May 17, but that still may not be enough to help people who have a tax bill due. According to experts, fewer people have filed their taxes so far this year compared to last, and many may be delaying dealing with their tax bills after the financial impact of 2020.

“Just looking at the circumstance, you have to anticipate it is probably millions,” said Bob Probasco with Texas A&M University’s low-income tax clinic.

Probasco was referring to millions of people who lost their jobs, had to claim unemployment and now owe the taxes on unemployment benefits over $10,200. Included in the potential millions of people delaying tax return filings are people who had to pull out money from their retirement plans. They may have avoided a 10 percent penalty under a CARES Act provision, but they now owe the traditional taxes on that income.

Probasco’s tax clinic focuses on helping people who are struggling to pay. His first piece of advice for anyone who is worried about their potential tax bill is not to avoid the issue.

“It is with rare exceptions almost always file, even if you can’t pay,” said Probasco.

There are two reasons for that. The first is it will ultimately cost you far more.

“When you can’t pay, you will be hit with some interests and penalties because of that, but if you also do not file, the IRS will penalize you up to 5 percent a month for the first five months that you are late,” he explained. "Twenty-five percent of your tax bill is pretty hefty.”

The second reason to file even if you can’t pay is it opens up your access to special and little-known IRS programs.

“If you have been fairly compliant with your taxes, as far as filing and paying on time, but this time you can’t, the IRS has a program called first-time penalty abatement,” said Probasco. "They will wipe the penalties off.”

There are even programs that will wipe out almost all of your actual tax bill.

"I have had clients that owed $40,000, and reasonably, they could not pay anything at all, and the IRS agreed to accept a dollar,” he added.

The key to accessing this help is to be proactive, file your taxes before the deadline, and seek help from a tax professional. You can access a list of free tax clinics like Probasco’s by going directly on the IRS website and to the ‘Taxpayer Advocate Services’ tab or type that in the search box. There are more than 100 of these free tax clinics around the country.

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If you’re wondering how you’re affected, not to worry, we have your back. We’re doing the work to make sure our products are up to date and that you can use them to file your taxes with complete confidence.

That said, many folks are wondering what’s in the bill and how it might affect them. Here’s a recap of some of the major tax provisions in the new tax bill and how they may impact you.

Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

Fastax Has You Covered

Don’t worry about memorizing these tax changes the majority of which are for 2018 taxes that you file in 2019. Fastax has you covered and will be up to date with the latest tax laws. Call us for tax help at 661 493-8512