5 things to know before the April 18 deadline
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This is an excerpt from the Personal Finance team’s weekly Twitter space, “This week, your portfolio”. Check out the latest episode here.
Tax day is fast approaching. The deadline for filing a federal tax return for most Americans is just over two weeks away, Tuesday, April 18.
Here’s what late filers need to know, according to CNBC’s Kate Dore, personal finance journalist and certified financial planner.
1. You may be able to get free help preparing your return
Some taxpayers can take advantage free resources when filing a return.
For example, the IRS Free File program offers free, guided online tax preparation. The program, offered through a public-private partnership, is available to taxpayers with an adjusted gross annual income of $73,000 or less in 2022.
Free File is available to 70% of taxpayers, but few use it – and they may inadvertently pay to file a return.
2. Your tax refund could be lower this year
The IRS had issued 54 million refunds as of March 17. About 75% of tax returns processed have been refunded.
The average refund was $2,933, compared to $3,305 at the same time last year. The reduction is tied to the expiration of pandemic-era aid, such as the enhanced child tax credit and earned income tax credit payments, for example.
3. Common mistakes can trip you up
Commmon errors on a tax return could delay the processing of the return or a refund due to you.
Among the most important: missing tax forms.
This can happen, for example, if you are a gig economy worker who received a Form 1099 but did not report that income on your tax return. Or maybe you didn’t report investment income because you didn’t receive a copy of your form in the mail, although it’s probably available online.
However, the IRS receives copies of these tax forms and knows if this information is missing from your return.
Other common errors include incorrect spelling or numbers for your name, date of birth, social security number, or bank account and routing number information.
Not filing electronically and not requesting direct deposit can also delay your tax refund.
4. You can get a file extension — but not to pay
Taxpayers can request a six-month extension to file their federal return.
This may make sense if you are missing a tax form, for example. Taxpayers can request an extension for free online through IRS Free File, regardless of income.
The kicker: You can’t get an extension to pay your federal tax bill. You must pay this invoice by the April 18 deadline. You can estimate this bill by following the process on the tax software and using estimates for missing forms.
Another caveat: Taxpayers requesting a federal extension must request one separately for their state tax return.
5. There are penalties for non-declaration and non-payment
IRS levies financial penalties for failing to file a return and for failing to pay your taxes.
Failure to file results in a penalty of 5% of your outstanding balance per month or part of a month, up to 25%, plus interest, which is currently 7%.
Non-payment of a tax invoice results in a lesser penalty of 0.5% of your unpaid balance per month or part of a month, up to 25% plus interest.
If you can’t afford to cover your entire balance, you can apply for an installment agreement, a long-term monthly payment plan.
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