The deadline to file your taxes has been extended to May 17, but that still may not be enough to help people who have a tax bill due. According to experts, fewer people have filed their taxes so far this year compared to last, and many may be delaying dealing with their tax bills after the financial impact of 2020.
“Just looking at the circumstance, you have to anticipate it is probably millions,” said Bob Probasco with Texas A&M University’s low-income tax clinic.
Probasco was referring to millions of people who lost their jobs, had to claim unemployment and now owe the taxes on unemployment benefits over $10,200. Included in the potential millions of people delaying tax return filings are people who had to pull out money from their retirement plans. They may have avoided a 10 percent penalty under a CARES Act provision, but they now owe the traditional taxes on that income.
Probasco’s tax clinic focuses on helping people who are struggling to pay. His first piece of advice for anyone who is worried about their potential tax bill is not to avoid the issue.
“It is with rare exceptions almost always file, even if you can’t pay,” said Probasco.
There are two reasons for that. The first is it will ultimately cost you far more.
“When you can’t pay, you will be hit with some interests and penalties because of that, but if you also do not file, the IRS will penalize you up to 5 percent a month for the first five months that you are late,” he explained. "Twenty-five percent of your tax bill is pretty hefty.”
The second reason to file even if you can’t pay is it opens up your access to special and little-known IRS programs.
“If you have been fairly compliant with your taxes, as far as filing and paying on time, but this time you can’t, the IRS has a program called first-time penalty abatement,” said Probasco. "They will wipe the penalties off.”
There are even programs that will wipe out almost all of your actual tax bill.
"I have had clients that owed $40,000, and reasonably, they could not pay anything at all, and the IRS agreed to accept a dollar,” he added.
The key to accessing this help is to be proactive, file your taxes before the deadline, and seek help from a tax professional. You can access a list of free tax clinics like Probasco’s by going directly on the IRS website and to the ‘Taxpayer Advocate Services’ tab or type that in the search box. There are more than 100 of these free tax clinics around the country.