According to the Internal Revenue Service (IRS), nearly 12 percent of individual taxpayers received extensions to file their 2021 federal income tax returns. The filing deadline is October 17, 2022. An individual federal tax filing extension is normally October 15, six months after the regular individual filing deadline of April 15. However, since October 15 falls on a Saturday this year, the filing deadline is extended to the next business day which is Monday October 17, 2022.
A record 19 million individuals have filed a 2021 income tax filing extension with the IRS. A variety of reasons have contributed to this record number of income tax filing extensions, including:
(1) Usual procrastination;
(2) The shifting of the individual federal income tax filing due date (see below);
(3) Covid-related tax law changes;
(4) IRS delay in issuing 2021 tax forms; and
(5) IRS backlog of processing 2019 and 2020 tax returns.
Unfortunately, many individuals are still missing 2021 tax-related information that they need in order to file their 2021 income tax returns. While the IRS is encouraging CPAs, Enrolled Agents and other professional tax preparers to file their clients’ 2021 tax returns, many of these professionals are unable to complete their clients’ tax returns due to missing 2021 tax-related information.
In August, the IRS took the rare step of waiving late filing penalties for 2019- and 2020-income tax returns. However, tax experts say that similar penalty relief is unlikely for the 19 million individuals who requested filing extensions on their 2021 tax returns due to be filed no later than October 17, 2022.
Some of the 19 million individuals were not ready to file their 2021 tax returns by April 19, 2022) (the original due date of 2021 tax returns) because they got accustomed to having more time to file their tax returns and to pay what they owed on their federal income tax returns during the last two filing seasons. The IRS pushed back the filing deadline for 2019 federal income tax returns to July 15, 2020, and for the tax filing deadline for 2020 federal income tax returns was extended to May 17, 2021.
It is also important for individuals to be reminded that by filing IRS Form 4868 (Application for Automatic Extension of Time to File), they are requesting an extension to file their tax return and not an extension to pay any federal income taxes due. Individuals who filed for a 2021 extension using Form 4868 were required to pay 100 percent of what they estimated they would owe on their 2021 federal income tax return. They got credit for federal income taxes paid during 2021 via payroll and pension/IRA federal tax withholding, through 2021 federal estimated tax payments, and finally with any federal tax paid when they submitted their 2021 filing extension. If the full amount of anticipated 2021 federal tax liability was not made by April 19, 2022, then the IRS will most likely charge penalties that can reach up to 25 percent of the balance due of the 2021 federal tax liability, with some exceptions.
There are individuals with limited partnership income (such as real estate investors) who are still waiting to receive their 2021 Schedule K-1s and new K-2s and K-3s (used for foreign investment reporting). These forms were supposed to have been sent out to individuals needing them by September 15, 2022. If received, this allows these individuals expecting a K-1, K-2, and/or K-3 one month to complete their 2021 federal income tax returns. But some individuals needing their 2021 K-1, K-2, and/or K-3 have not received these forms.
The following are some general guidelines and suggestions for individuals who have filed a 2021 extension and who need to get their 2021 federal income tax returns prepared and filed by October 17, 2022:
• If waiting for a Schedule K-1, K-2 or K-3 or any other 2021 tax-related document, then once a missing form is received, individuals should get the form to a tax professional as soon as possible. In the meantime, have the tax professional prepare the tax return without the forms. The tax professional will then only have to complete these specific schedules once the K-1, K-2, K-3 or other form is received. If the forms are not received before October 17, the individual’s 2021 return should still be filed. A 2021 amended tax return can subsequently be filed after the October 17 filing deadline once the 2021 tax document is received. If there is a balance due on the amended return, the interest charges will be far less compared to the penalties for not filing a 2021 return by the October 17,2022 filing deadline
• Electronically file if at all possible. Filing electronically and choosing direct deposit will result in a faster refund compared to filing a paper return
• If there is a balance due, then pay as much as possible – ideally 100 percent in order to avoid additional interest and penalty charges. For those individuals who owe taxes and have not paid in yet, the sooner one pays the less will be owed in interest and penalties. For the third quarter of 2022, the interest rate on underpayment is 5 percent. For the fourth quarter of 2022 staring October 1, 2022, the interest rate increases to 6 percent, and
• Double check 2021 Covid-related payments. Before filing 2021 returns, it is important to double check 2021 stimulus payments and advanced child-tax credit amounts. Mistakes related to these two Covid-related tax breaks have caused delays in tax return processing and refunds.
For anyone who misses the October 17,2022 filing deadline, there are no more extensions. But if the IRS owes an individual a refund, the IRS will not charge a late filing penalty for filing late. However, after October 17, 2022, the IRS does not accept electronically filed returns. Returns will therefore have to be mailed, resulting in significant delays of receiving a 2021 income tax refund.