You may have heard that April 15, 2021, is not our feared National Tax Due Date. For the second year in a row, IRS has granted taxpayers a pandemic-related reprieve for Tax Year 2020. This time, rather than mid-summer, it is only until May 17, 2021, and is not a complete reprieve. Some winter storm-affected Americans already had their due dates changed to June 15.
The most important takeaway from the current extension is that it applies only to 2020 tax filings and payments. 2021 taxes are due on the usual dates, which, for many people simply means routine payroll withholding. For taxpayers who file quarterly tax estimates on Form 1040-ES, 2021 payment dates are April 15, June 25, September 15, and January 15 (2022). These payments are the focus of today’s Blog.
First, remember the April 15, 2021 date: Form 1040-ES for Quarter 1, 2021, is due that day. Since last year’s tax extension applied to both filing and payment dates, April 15 (2021) would be an easy payment to overlook. Filing late will result in penalties and interest. Don’t get penalized for making a late payment.
Second, tax rates have not (so far, anyway) been changed for Tax Year 2021. Estimating quarterly payments should be relatively straightforward this year. If the taxpayer(s) incurred a significant change in income, up or down, the calculation should reflect income variation. Avoiding over-withholding (essentially making a free loan to the Treasury) improves personal cash flow, while under-withholding can lead to penalties and interest.
Third, there are strong indications that tax rates and/or brackets will change for 2022. Promises notwithstanding, people are likely to incur a tax increase in 2022. For taxpayers who have some control over their income and/or expenses, it may be wise to accelerate 2021 income and delay expenses into 2022.
Finally, for last year (2020), it is still possible to fund IRAs until May 17, 2021. That can even be done by diverting all or part of your tax refund to the actual IRA. Contributions to a Traditional IRA decrease your last year’s tax bill. What a deal!
By the way, the current Administration is currently floating a trial balloon regarding the possibility of even another $1.9 Trillion “COVID-19 Relief” bill, on top of everything we just discussed. Fasten your seatbelts, taxpayers! That would probably trigger yet another round of tax hikes.
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