Monday January 25, 2021
IRS Tax Filing Season Starts February 12
The delay this year is due to the passage of tax law changes in the omnibus spending bill enacted on December 27, 2020. This bill created a second round of Economic Impact Payments and changed other tax provisions. In order to ensure that tax return software is correct and able to provide the Recovery Rebate Credits to individuals who did not receive the full amount of their stimulus check, the IRS had to defer the start date.
Taxpayers who file electronically with direct deposit may receive the first refunds. This includes taxpayers who use the IRS Free File software.
IRS Commissioner Chuck Rettig stated, "Planning for the nation's filing season process is a massive undertaking, and IRS teams have been working nonstop to prepare for this as well as delivering Economic Impact Payments in record time. Given the pandemic, this is one of the nation's most important filing seasons ever. This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible."
The average tax refund last year was more than $2,500. The IRS expects to receive 150 million tax returns before the April 15, 2021 deadline.
The IRS reminds taxpayers that a refund on a return claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) cannot be processed before the middle of February. This is a requirement that enables the IRS to conduct appropriate checks to stop fraudulent refunds. Both EITC and ACTC taxpayers may start to receive electronic refunds the first week of March.
When the tax filing season starts in February, those taxpayers who file electronic returns can anticipate receiving a refund within 21 days. Individuals who may not have received the full stimulus payment for which they are qualified should review guidelines for the Recovery Rebate Credit. All taxpayers should recognize that stimulus payments are not taxable and will not reduce your refund.
Editor's Note: The IRS published several applicable deadlines. Tax filing season begins on February 12. For individuals claiming EITC or ACTC, the Where's My Refund tool will be updated on February 22. The refunds for returns claiming EITC or ACTC will commence in March. The deadline for 2020 tax returns is Thursday, April 15, 2021.
Will the April 15 Tax Deadline Change?
On January 21, 2021, IRS Commissioner Chuck Rettig spoke at an Urban–Brookings Tax Policy Center webinar. The webinar focused on tax and fiscal policy issues during COVID–19.
Howard Gleckman is a Senior Fellow at the Tax Policy Center and was the moderator for the webinar. He asked Commissioner Rettig whether the IRS could keep an April 15 filing deadline if the new proposed additional stimulus payment of $1,400 is enacted. The President has proposed an additional $1,400 payment to be added to the January stimulus payments to total $2,000 per individual.
Commissioner Rettig responded, "I can say that the IRS stands ready to serve and assist the American people." He did not indicate whether the IRS would be able to send a third stimulus check and still complete the tax filing process by April 15, 2021.
Commissioner Rettig did explain the filing season delay to February 12, 2021. He believes that the additional time will enable the IRS to reprogram computers and have "a seamless session where we are not tied up on the back end."
The IRS processed Economic Impact Payments in both April 2020 and January 2021. Some of the stimulus payments will also be included as refundable tax credits on 2020 returns.
Commissioner Rettig was pleased that the backlog of paper envelopes has been largely resolved. Due to the shutdown of the IRS during the middle of 2020, the IRS accumulated 23 million unopened pieces of mail. It has been a huge task to open the mail and process the returns and refunds in the midst of the COVID–19 pandemic. Rettig reported that the IRS was down to a few million pieces of unopened mail by the end of 2020.
He stated that "We're not too far off from where we would be in the ordinary course" of a typical filing season. Rettig explained that the IRS is now functioning in a reasonably normal manner, even with the COVID-19 safety protocols and social distancing rules.
Treasury Nominee Yellen's Tax Predictions
On January 21, 2021, the Senate Finance Committee conducted a confirmation hearing for Dr. Janet Yellen. The former Chair of the Federal Reserve has been nominated to be Secretary of the Department of Treasury.
In response to questions submitted by Sen. Chuck Grassley (R–IA), Yellen provided written answers. The questions from Sen. Grassley are briefly summarized below along with excerpts from Dr. Yellen's answers, which provide insight on the probable direction of future tax policy.
1. Will President Biden allow the tax reductions in the Tax Cuts and Jobs Act to lapse in 2026?
Answer: Expiration of particular aspects of the Tax Cuts and Jobs Act of 2017 will impact taxpayers with incomes under $400,000. As noted, President Biden pledged during the campaign that no American taxpayer with income under this threshold will be subject to a tax increase.
2. Will the President support the increase of the Child Tax Credit to $2,000 and the doubling of the standard deduction?
Answer: During the campaign, the President advanced a series of principles around tax policy in general and the 2017 tax cut in particular. In describing how he wants to repeal the parts of the 2017 tax cuts that benefited the wealthiest Americans and large companies, he clarified that the repeal of certain aspects of the tax law would be restricted only to those taxpayers making more than $400,000 a year, with a firm commitment that taxpayers earning less than this amount would not see their taxes increase.
3. President Biden was not clear during the campaign on his position on state and local taxes (SALT). Will he repeal the SALT cap of $10,000?
Answer: [It] is critical to study and evaluate what the impact of the SALT cap has had on state and local governments and those who rely upon their services. I will work with those at Treasury and throughout the Administration in evaluating those impacts, as well as other aspects of this issue.
4. President Biden proposed reducing the estate tax exemption amount from the current $11.7 million to $3.5 million and increasing the estate tax rate to 45%. Will this reduction in the estate exemption occur?
Answer: On the President's estate tax proposal in particular, it may be helpful to note that only about the wealthiest six out of every thousand estates would face any tax –– less than 1% –– and every couple with assets under $7 million would be fully exempt from the estate tax.
5. In 2019, Congress passed the SECURE Act and there now is a bipartisan proposal to pass the Securing a Strong Retirement Act. Will President Biden support a new bill to incentivize retirement savings?
Answer: I look forward to working with you to find ways to improve the retirement savings system. . . . [Under] the President's plan, almost all workers without a pension or 401(k)–type plan will have access to an "automatic 401(k)," which would provide the opportunity to easily save for retirement at work – putting millions of middle–class families on the path to a secure retirement.
6. The Tax Cuts and Jobs Act reduced the corporate rate to 21%. Will President Biden increase the tax rate on businesses to 28%?
Answer: The President believes that it is critical that we raise additional revenues from the wealthiest Americans and corporations to cover our long–term obligations to our nation's seniors and many others.
Editor's Note: It is potentially significant for philanthropy that Dr. Yellen reports she and the President are interested in supporting the Securing a Strong Retirement Act of 2021. Section 310 of the prior bill includes an option for IRA and other qualified plan owners to make a one-time qualified charitable distribution (QCD) of $130,000 to a charitable gift annuity, charitable remainder annuity trust or standard charitable remainder unitrust. Her support suggests that this bill and the expansion of the IRA rollover has a reasonable prospect for passage in 2021. If the language in the existing bill is retained, this expansion of the IRA rollover could take effect this year.
Applicable Federal Rate of 0.6% for February -- Rev. Rul. 2021-4; 2021-6 IRB 1 (19 January 2021)
The IRS has announced the Applicable Federal Rate (AFR) for February of 2021. The AFR under Section 7520 for the month of February is 0.6%. The rates for January of 0.6% or December of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.
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