Why You Need To File Your 2019 Taxes By July 15, 2020

By: Laura Saunders, WSJ

July 10, 2020 5:30 am ET

No matter how stressed or financially stretched you are this year, file tax forms with the Internal Revenue Service by July 15. Not doing so will only make your bad situation worse.

The deadly coronavirus pandemic has upended the lives and finances of millions of Americans, leaving the U.S. with about 15 million fewer jobs than in February. In response, the IRS issued a historic emergency declaration easing a host of requirements. For the first time, it delayed the traditional April 15 filing deadline by three months.

Now the July 15 deadline to file 2019 taxes is days away, while many Americans’ lives are still in disarray. Some, feeling overwhelmed, may be tempted to ignore their taxes.

That would be a huge mistake: If you owe Uncle Sam, blowing off tax filings has immediate consequences that compound and are almost impossible to escape, because the IRS is the most powerful creditor in the nation.

“To get its money, the IRS can file a lien on your property that wrecks your credit, seize your bank account, and take your wages. It can even get money from your IRA or 401(k) savings account, and you’ll owe tax on the withdrawal,” says Bryan Skarlatos, a criminal tax attorney with Kostelanetz & Fink in New York.

However, taxpayers can take steps to minimize the damage if they can’t pay in full or at all. With tax debts, small moves can mean big differences.

Here’s an example: Two of the IRS’s most potent penalties are for failure to file a return and failure to pay tax. If someone doesn’t file or pay $1,000 of tax for a year, then the failure-to-file penalty adds $435 to the bill and the failure-to-pay penalty adds $60. The $495 total is often far higher than credit card interest on a similar amount.

Interest is also due on unpaid taxes and penalties. It compounds daily, currently at an annual rate of 3%. In this case it adds another $45 after a year. Smaller penalties may apply as well.

But say this same taxpayer files the IRS form to get an automatic three-month filing extension by July 15 and then files a return by Oct. 15. Even if this person can’t pay the balance due, filing the return on time removes the large failure-to-file penalty. If this person can pay something, the cost can shrink further.

The IRS isn’t known for its mercy, but it has programs and other measures for taxpayers who can’t pay what they owe. These can be confusing, especially for filers who haven’t used them before, so here are steps to take and pitfalls to avoid in this extraordinary tax year.

• File something by July 15. As the example above shows, the failure-to-file penalty is immediate and large.

Be sure your return is accurate, and try to file it by July 15. If that’s impossible, then file IRS Form 4868 by July 15 to get an automatic three-month extension to prepare the form until Oct. 15.

There’s no extension to pay your tax, so interest on what you owe starts accruing on July 15 even though you have an extension to send in the return and may not know exactly what you owe yet.

If you miss these deadlines, file as soon as possible. Bottom line: If you can’t pay, you should still file.

• Know which excuses work. The IRS abates penalties for “reasonable cause,” with the pandemic as a possible cause this year.

Still, the reasonable-cause defense has limits. For example, a family death or serious illness three years ago probably won’t count as an excuse to be late in filing or paying 2019 taxes.

Taxpayers with a clean record until their lapse can often receive a “first-time abatement” because of prior good behavior.

• Understand the IRS’s payment plans. It can be fairly simple to pay back taxes to the IRS. To qualify for a short-term payment agreement, you must owe $100,000 or less in taxes, penalties and interest and be able to pay within 120 days. Usually, this plan can be set up quickly online at IRS.gov. There’s no set-up fee for online agreements.

Taxpayers who need longer than 120 days to pay and owe less than $50,000 can opt for an installment agreement. For many, the online set-up fee is $31 for a plan with direct monthly debits and $149 for one without monthly debits.

• Consider how to raise funds. Mr. Skarlatos warns that penalties and interest continue to compound on unpaid taxes if you use an IRS payment plan. So he recommends borrowing the funds from a bank, a 401(k), a relative or even a credit card, if possible. Congress eased terms for 401(k) loans due to the pandemic.

• Beware of sales pitches promising miracles. For taxpayers who can’t pay the IRS in full, a program known as Offers in Compromise may accept a lower amount in settlement. Some firms promising to secure these offers advertise on radio or TV.

The IRS typically accepts less than 40% of offers it receives. Fees to firms that advertise them can be high and include recurring charges while the IRS considers a proposal over many months.

IRS Commissioner Chuck Rettig urges taxpayers seeking an offer in compromise to check with the IRS first.

“To hear some of these ads, struggling taxpayers can think their tax debts will magically disappear. Many people can avoid unnecessary disappointments and fees by quickly reviewing the program or asking an IRS representative,” he adds.

• If all else fails… The IRS won’t pursue tax debtors if that leaves them without living expenses. In this case, the account is designated as “currently not collectible” and the IRS pauses collections, usually for up to a year. Penalties and interest continue to accrue.

To qualify for this status, says Szu-Ju Chang, an attorney in Las Vegas who has worked extensively with low-income taxpayers, a person will need to provide detailed information about income, expenses, and assets for the IRS to assess.

For more information, contact the Taxpayer Advocate Service or a low-income taxpayer clinic.

https://www.irs.gov/

Two New Refundable Payroll Tax Credits Available Now

COVID-19 paid leave tax credits for
small and midsize businesses

Small and midsize employers can claim two new refundable payroll tax credits. The paid sick leave credit and the
paid family leave credit are designed to immediately and fully reimburse eligible employers for the cost of providing
COVID-19 related leave to their employees.
Here are some key things to know about these credits.
Coverage
• Employers receive 100% reimbursement for required paid leave.
• Health insurance costs are also included in the credit.
• Employers do not owe their share of social security tax on the paid leave and get a credit for their share of
Medicare tax on the paid leave.
• Self-employed individuals receive an equivalent credit.
Fast funds
• Reimbursement will be quick and easy.
• The credit provides a dollar-for-dollar tax offset against the employer’s payroll taxes
• The IRS will send any refunds owed as quickly as possible.
To take immediate advantage of the paid leave credits, businesses should use funds they would otherwise pay to the
IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, employers can request an
expedited advance from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
For details about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov.
Share this tip on social media — #IRSTaxTip: COVID-19 paid leave tax credits for small and midsize businesses.
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Special Web Page Regarding COVID-19

The IRS has established a special web page to help taxpayers, businesses and others affected by the coronavirus. The web page will be updated as new information becomes available.

For health information about the COVID-19 virus, visit the Centers for Disease Control and Prevention (https://www.coronavirus.gov). Other information about actions being taken by the U.S. government is available at https://www.usa.gov/coronavirus and in Spanish at https://gobierno.usa.gov/coronavirus.


Additionally, the IRS this week advised that high-deductible health plans (HDHPs) can be used to pay for 2019 Novel Coronavirus (COVID-19)-related testing and treatment, without jeopardizing their status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA). As stated in Notice 2020-15, health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing or treatment of COVID-19 before plan deductibles have been met. As in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.

Taxpayers Should Watch Out For Gift Card Scams

Taxpayers should always be on the lookout for scams. Thieves want to trick people in order to steal their personal information, scam them out of money, or talk them into engaging in questionable behavior with their taxes. Scam attempts can peak during tax season, but taxpayers need to remain vigilant all year.

Gift card scams are on the rise. In fact, there are many reports of taxpayers being asked to pay a fake tax bill through the purchase of gift cards.

Here’s how one scenario usually happens:

  • Someone posing as an IRS agent calls the taxpayer and informs them their identity has been stolen.
  • The fake agent says the taxpayer’s identify was used to open fake bank accounts.
  • The caller tells the taxpayer to buy gift cards from various stores and await further instructions.
  • The scammer then contacts the taxpayer again telling them to provide the gift cards’ access numbers.
     

Here’s how people can know if it is really the IRS calling. The IRS does not:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.
  • Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
  • Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
  • Threaten to bring in local police, immigration officers or other law-enforcement to have the taxpayer arrested for not paying.
  • Revoke the taxpayer’s driver’s license, business licenses, or immigration status.

People who believe they’ve been targeted by a scammer should:

  • Contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their IRS Impersonation Scam Reporting web page. They can also call 800-366-4484.
  • Report phone scams to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. They should add “IRS Telephone Scam” in the notes.
  • Report an unsolicited email claiming to be from the IRS, or an IRS-related component like the Electronic Federal Tax Payment System, to the IRS at phishing@irs.gov. The sender can add “IRS Phone Scam” to the subject line.

More information:
IRS Impersonation Scam Reporting
Consumer Alerts
Report Phishing
Phone Scams

Share this tip on social media — #IRSTaxTip: Taxpayers should watch out for gift card scam. https://go.usa.gov/xp5yk.