A year ago, the Coronavirus pandemic was beginning to impact Americans across the country through forced shutdowns and social distancing mandates. As part of the response to this crisis, the federal government postponed Tax Day from April 15 to July 15.
Today, some lawmakers including Ways and Means Chairman Richie Neal (D-Mass) are calling on the IRS to again delay Tax Day, arguing that Americans again need relief.
However, before moving Tax Day, policymakers need to carefully consider whether it is truly needed to help Americans file, or if alternatives already exist. In addition, policymakers must consider the fact that millions of Americans will needlessly delay filing their taxes and delay receiving thousands of dollars in tax refunds from the federal government.
Extending Tax Day is a costly and time-consuming process that may do little to help taxpayers, as noted by the Federation of Tax Administrators. Delaying this deadline requires a significant diversion of taxpayer dollars and a “distressingly long” list of changes including changes to software, tax forms and guidance, audit periods, underpaid taxes, late returns, and statutes of limitations.
As it stands, any taxpayer can claim a six-month extension on filing their federal income tax return. This is generally a simple process that can be done online or by filing a paper form and providing a taxpayer’s name, address, and social security number. Some states even grant an extension without filing a form.
Supporters of moving the April 15 filing deadline cite the changes made to the taxation of unemployment benefits in the Biden $1.9 trillion spending plan. Under this legislation, $10,200 in unemployment income received in 2020 will not be taxable for most Americans.
However, it is not clear that moving the date is necessary to help these taxpayers. Those effected by this change will fall into two categories – those that have filed already and those that have not yet filed.
Taxpayers that have already filed, including those that receive a refund because they claim the Earned Income Tax Credit, child tax credit, or other tax provision, will have to file an amended return to receive an increased refund.
Those that have not yet filed can file now and file an amended return later or file an extension and wait until the IRS can has updated its forms for this change in tax law.
They can easily request an extension on their returns if they choose the latter option – there is no need to extend filing deadlines.
Rather than helping taxpayers, delaying the tax filing deadline could actually hurt millions of American families, as it would delay receiving tax refunds that they are owed.
According to IRS data from last year, millions of taxpayers delayed filing even though they were owed a refund. By mid-June, the number of refunds issued was down by 12 percent compared to the year before, while the amount of refunds issued was down by $30 billion.
In other words, $30 billion was being held by the IRS for months, waiting to be refunded to taxpayers.
In any given year, almost 3 in 4 people receive a tax refund averaging $3,000. Delay the filing deadline and you delay that $3,000 to a family.
Many people have busy lives and wait until the last minute to file every year. Based on prior years, an estimated 35 million people (25% of all tax filers) wait until the last two weeks of tax season (April 1-15) to file. Of these 35 million taxpayers, more than half receive a refund averaging $2,000.
Last year’s delay also resulted in a delayed start to this year, which has resulted in a slower pace of issuing refunds. Delaying Tax Day this year could therefore have a spill over effect into the 2022 tax filing season.
The federal government has taken significant steps toward helping Americans through the pandemic. Where it is determined that more assistance is needed, the government should be sure to carefully examine the issue to ensure assistance is targeted and does not have adverse effects. As it relates to delaying the 2021 tax filing deadline, policymakers must scrutinize whether it is truly needed and what negative effects it may have on taxpayers.