If you're disappointed to learn you can't submit your tax return as early as you'd like this year, you're probably not alone. The start of the 2020 tax season was delayed by the IRS until Feb. 12 because of stimulus check processing, which means you may not see your refund until March. But this is all the more reason to make sure you're not adding to the delay.
Accountants are warning taxpayers to file early and make sure filings are complete the first time to avoid refund delays. Even though the IRS won’t start processing returns until Feb. 12, eligible taxpayers can start filing their returns through the IRS’s free services: MilTax (tax services for military members) and IRS Free File (available to taxpayers or families who earned $72,000 or less in 2020).
Tax preparers through MilTax and IRS Free File are currently accepting completed forms and will transmit them to the IRS so they are ready for processing on Feb. 12.
Though the IRS won’t start processing returns until 16 days later than it did last year, the agency expects that 90% of taxpayers receiving refunds will get them within 21 days of filing electronically and opting for direct deposit—as long as there are no issues with the tax return.
So what should taxpayers be mindful of this year? For starters, eligible taxpayers who did not receive their full stimulus payments will be able to claim the balance on their 2020 tax return as a Recovery Rebate Credit. This includes taxpayers whose 2020 tax situation would have qualified them for the stimulus payment (even if their 2018 or 2019 tax situation did not). This could also include taxpayers who had a child in 2020 or someone who was a dependent of someone else last year but no longer is, according to Mark Steber, chief tax information officer at tax preparation firm Jackson Hewitt.
And while the Treasury Department and IRS have already sent stimulus checks to millions, there may still be taxpayers who did not receive the funds.
“Filers will have to watch that they do not double claim these payments if the second-round payment arrives after filing a return, which may require an amendment to the tax return,” Garrett Watson, senior policy analyst at the Tax Foundation, wrote in an article Friday.
Also note that unemployment insurance, including additional weekly boosts in 2020 from government stimulus bills, is taxable.
Another pitfall to avoid is incorrectly claiming the home office deduction. Many employees worked from home throughout the pandemic, but “only those who are self-employed can take a home office deduction,” Steber said.
Also, filers who purchased health insurance through the Affordable Care Act marketplace during the year need to make sure they file Form 1095-A, said Maribel Salazar, CPA at Del Real Tax Group.
According to the Centers for Medicare & Medicaid Services (CMS), more people enrolled in health plans through HealthCare.gov for the 2020 coverage year than for any other year in which the CMS has collected data (2017-2020).
“One of the things we see most that delays a refund is that people forget to include the 1095-A,” Salazar said. “People don’t think that matters, but the IRS won't process it and will have to send it back to confirm. People can download the document at HealthCare.gov.”
Accountants are stressing the importance of filing early not only because taxes may be more complicated this year but also because preparers may also be facing a bigger load—many people may still have to catch up on filing taxes from previous years to receive their stimulus payments, Salazar said.
Plus, there are no drawbacks to filing early even if you owe money.
“Just because a taxpayer files early, or before April 15, does not mean they must pay then,” Steber said. “Taxpayers still have until April 15 to pay their taxes if (they) owe."