Waiting for the Dust to Settle Before Filing Taxes? Don’t.
Early, early, early is the usual mantra for filing tax returns. And even with another stimulus check proposal and potential tax benefits being debated in Congress, tax preparers are doubling down on that advice.
“Stimulus 3 is a distraction,” said Mark Steber, chief tax information officer at Jackson Hewitt. “It’s still the same advice I always give—don’t buy, sell, or start any transaction on the prospect of a tax benefit. They very rarely materialize.”
- Talk of new forms of government relief shouldn’t deter you from filing your taxes early, preparers say.
- If you made less in 2020 than in 2019, filing early could help make sure you get your full $1,400 if President Joe Biden’s stimulus check proposal is approved by Congress.
- Tax preparers say you shouldn't wait to see what happens with the new proposal to waive federal taxes on some unemployment benefits.
The IRS will start accepting and processing tax returns on Friday, but with all the news about new government relief proposals being considered, you might be tempted to wait for the dust to settle before filing. After all, Democratic leaders are aiming to pass the main elements of President Joe Biden’s stimulus package by March, and new legislation introduced last week aims to waive federal income taxes on some 2020 unemployment benefits.
But tax preparers recommend you get cracking on those filings. If anything, you’re better off filing sooner rather than later if a job loss or other pandemic hardship meant you earned less in 2020 than in 2019, said Ryan Parker, president of Professional Tax Service, a tax preparation firm serving the Grand Traverse region in Michigan.
“In that case, you would want to file ASAP,” he said.
That’s because another stimulus check under Biden’s proposal—up to $1,400 per taxpayer plus $1,400 per dependent—would be based on income: 2020 income if it’s already on file, or 2019 income if it’s not. And only taxpayers who earned $75,000 or less (or couples who earned $150,000 or less) would be eligible for the full amount.
Perhaps, though, you’re hoping to avoid paying taxes on a chunk of your unemployment checks. Sen. Dick Durbin, a Democrat from Illinois, and Rep. Cindy Axne, a Democrat from Iowa, introduced legislation to waive federal income taxes on the first $10,200 of unemployment benefits received in 2020.
Tax preparers point out that tax changes can take time to pass. Plus, it would be impractical for the government to apply a tax change to 2020 returns midway through the tax season, they say.
“The government will realize if they make it retroactive, a lot of amendments would have to be filed and that workload would be crushing to the IRS and accountants,” Parker said.
Separately, Democrats unveiled an expanded child tax credit proposal this week, but that would apply to the 2021 tax year, with a monthly advance to begin in July. (In fact, like another stimulus check, that credit—to be included in Biden’s relief package—would also be based on either 2019 or 2020 tax return information, so the same advice to file early applies if you earned less in 2020.)
Separate from any legislative proposals, Steber would argue that 2020 is a “super-sized file-early” situation. The pandemic has introduced special tax considerations, such as deductions related to working from home, that could trigger audit red flags. Early filing will give taxpayers more time to deal with potential headaches.
What’s more, once your taxes are filed, your information is “locked up” with the IRS, Steber said, which should help safeguard information from scammers (in abundance this year) who are trying to steal refunds.
But perhaps the best reason to file early is the same as it was last and every other year—to get your refund as soon as possible.
“There’s no downside to filing early,” said Steber. “If you get a refund, you get money back early. If you owe money, you still don’t have to pay it until April 15.”