What to know about filing taxes this season
January marks the traditional start of the season for filing income-tax returns. But like many things, that is delayed this year and there’s some doubt as to whether all parties, including the Internal Revenue Service, will fully be ready when it does start.
The IRS last year shut offices and slowed down operations when the COVID-19 pandemic hit, creating backlogs. The processing of some tax returns crawled to a halt and millions of 2019 refunds got delayed — right at the time the agency had to switch over to processing stimulus payments.
As of Christmas, the IRS still had 6.9 million individual tax returns to process for 2020. The agency said recently that it is making “significant progress” in processing them.
Remaining wait times depend on where taxpayers sent returns and where they were processed, the IRS said, without citing specifics.
“In some locations, we are caught up or almost caught up,” the agency added in a Jan. 13 operational update. “We are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available, and we are taking other actions to minimize any delays.”
Against that backdrop, here’s what to expect over the next several months:
Has IRS tax season started yet?
No. The filing season, when the IRS begins to accept and process returns, will start Feb. 12. The agency vows to be ready by then, with forms and instructions available on irs.gov. In 2020, the filing season began Jan. 27.
Were there many 2020 tax changes?
There were some, but not like the broad changes that took effect for the 2019 tax year.
One 2020 change was the widespread issuance of Economic Impact Payments or stimulus checks. These don’t count as taxable income, meaning people who received their payments don’t need to do anything to account for them on their tax returns.
Payments were automatic for people who filed a 2019 tax return and those receiving Social Security retirement income, survivor or disability benefits, Veterans Affairs benefits and for some other groups.
People who were eligible but didn’t receive a payment, or an accurate amount, can claim a Recovery Rebate Credit when they file their 2020 taxes this year. Incidentally, many of the stimulus payments now being made in the current round are in the form of prepaid debit cards.
Anything else of particular note?
Required minimum distributions from retirement accounts were suspended for 2020, and people who withdrew money from their accounts may spread this income over three years, which could lower the tax bite.
People under 59 1/2 who withdrew money (up to $100,000) from retirement accounts won’t face the 10% penalty that normally applies, assuming they were affected by the coronavirus in one of many possible ways.
There’s also a new deduction of up to $300 per return for charity donations made by nonitemizers during 2020. Also for nonitemizers, who now represent around 90% of taxpayers, the standard deduction rose to $12,400 for singles and $24,800 for married couples — up $200 and $400, respectively.
IRS Publication 17, available at irs .gov, provides a summary of recent tax changes.
Can taxpayers expect much personal help from the IRS?
Probably not. The agency had closed more of its walk-in offices to the public, including the four Taxpayer Assistance Centers in Arizona, even before the virus hit. During fiscal 2020, the IRS handled 1 million taxpayer visits across the U.S., by appointment, down from 4.4 million in 2016, according to the office of National Taxpayer Advocate Erin Collins. Translation: Fewer than 1% of individual taxpayers are helped in person by the IRS, and the COVID-19 pandemic hasn’t made that better.
Over-the-phone assistance also is spotty. Last year, the IRS received 100 million calls on its toll-free line but answered only 24 million, according to the National Taxpayer Advocate. Those people who got through were on hold an average of 18 minutes.
How about VITA sites?
In normal years, lower-income individuals may receive free tax-return preparation at IRS-affiliated VITA, or Volunteer Income Tax Assistance, sites set up at libraries, community centers, community colleges and other public venues.
Many, if not most, of these shut down last year with the pandemic. Program organizers haven’t yet announced participating locations, the mix of remote or in-person services, or other details.
Options still under discussion include drop-off and pickup services, limited face-to-face help by appointment and free links to VITA software for do-ityourselfers, said Jim Simpson, who runs the VITA network in Maricopa County.
What about IRS’ Free File service?
It’s now available. The service provides free return-filing software from several companies including TurboTax and TaxSlayer. It can be used at no cost by people with 2020 household earnings of $72,000 or less. About 4 million taxpayers used it last year. Go to irs.gov/ FreeFile for more information.
What about Arizona’s tax season?
The state’s tax-return filing season for individuals opened in early January, with no delay warnings from the Arizona Department of Revenue. As with federal returns, the normal state filing deadline is April 15, with automatic sixmonth extensions available, to Oct. 15.
As in years past, the department is encouraging electronic filing of returns, especially for people seeking quick processing and refund payments. Last year, about 90% of Arizona returns were filed electronically.
If you file electronically, “you can look for your refund within a couple weeks of the return acceptance,” the department said. “If you file a paper return, you can anticipate your refund within 6-8 weeks of the date you filed.”
However, refunds flagged for accuracy, fraud or identity theft concerns can take longer.