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Tax deadline 2021 extended by a month - what could this mean for you?

Tax deadline 2021 extended by a month - what could this mean for you?
(Image credit: Getty)

American taxpayers have an additional month in which to file their taxes after the Treasury Department and Internal Revenue Service (IRS) confirmed the federal income tax deadline 2021 has been extended from April 15 to May 17. 

In a move reminiscent of that seen last year, when the deadline was extended by three months due to the challenges created by COVID-19, the IRS Commissioner Chuck Rettig said the service wants “to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities."

How the tax deadline extension could affect you

The announcement means individual taxpayers, including those who pay self-employment tax, can now leave their tax software untouched for a further month if they so wish, without incurring penalties and interest, and regardless of the amount owed. 

Importantly, however, the postponement doesn’t apply to estimated tax payments, which are still due on April 15. While most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer, some people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income, must make estimated tax payments to the IRS quarterly.

Tax deadline 2021 extended by a month - what could this mean for you?

(Image credit: Getty)

While taxpayers do not need to take any action to benefit from the deadline extension, those who would like additional time to file beyond the May 17 deadline can request a filing extension until October 15 in the usual ways, by filing Form 4868 through their tax professional, tax programs or using Free File on the IRS website. As per any year, however, this does not grant taxpayers an extension of time to pay any taxes that they owe to October 15 - these will need to be taken care of by May 17 to avoid interest and penalties.

The extension does not automatically apply to state filing deadlines either, which vary and do not always align with the federal filing deadline anyway. Taxpayers are advised to check with their state tax agencies for their relevant deadlines.

Reasons to still file early

Despite the extra leeway, the IRS remains keen for taxpayers to file taxes online as soon as they can, particularly if they are due a refund - those who e-file can generally expect to see their returns issued within 21 days. Recent research shows that over half of Americans are relying on a tax refund to help boost their finances this year, with putting the money aside in savings and paying down debt on credit cards and personal loans the main uses they have in mind.  

With the IRS currently in the process of distributing stimulus check 3 to eligible Americans, and also making good on any money that people may still be owed for the first two relief payments, taxpayers have also been urged to file early to make sure the service is aware of their latest circumstances and direct deposit details.

“Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to," said Chuck Rettig.