Delays, changes add complexity to impending tax season

Dennis Buchheit

Over the course of his career, Dennis Buchheit has learned that the beginning of tax season is always accompanied by a sense of urgency.

The owner of Buchheit Tax Service in Dubuque gets the impression that clients this year are even more eager than usual.

“I really think there is more urgency,” Buchheit said. “There will be people who are desperate to get their taxes in because the sooner they can do that, the quicker (their refunds) can help them.”

Buchheit believes many are banking on their tax returns more than usual, given the economic struggles that have accompanied the COVID-19 pandemic.

However, the health crisis and accompanying government stimulus programs have created new complexities and slowed down the tax-filing process.

The Internal Revenue Service in mid-January announced it would begin accepting individual tax returns on Friday, Feb. 12 — two weeks later than usual.

The postponement was another sign that the IRS is struggling to keep pace with a growing list of duties, which has included distributing stimulus checks and implementing new tax rules tied to federal relief programs. On top of that, the IRS has a backlog of nearly 7 million paper returns that were filed last year and have yet to be processed.

The IRS has predicted that 90% of taxpayers getting refunds will receive them within 21 days.

To receive these funds as quickly as possible, one must file electronically, according to Buchheit.

“The IRS has basically said if you send in a paper return, it is going to be a long time before it is processed,” he said. “They are strongly encouraging people not to do that.”

NAVIGATING CHANGES

In addition to working on an altered timetable, tax professionals must guide clients through a range of changes this year, some of which could help taxpayers and some of which could hurt them.

For many Americans, the frustration of not receiving a stimulus check earlier will result in a windfall come tax season.

The IRS was given a Jan. 15 deadline to distribute direct stimulus payments. Due to a variety of hiccups, many eligible individuals didn’t receive their payments by that date.

These individuals now can claim the funds as a tax credit, named the Recovery Rebate Credit.

Scott Roberts, a partner with O’Connor, Brooks & CO., P.C. in Galena, Ill., believes there are many people in that boat.

“I have taken quite a few phone calls from people who haven’t received it,” he said. “There are a number of people that didn’t get it but should have.”

Others filing their taxes could be in for an unpleasant surprise.

In hopes of propping up an ailing U.S. economy, federal lawmakers dramatically expanded benefits for those who were unemployed or experienced a reduction in hours.

These unemployment payments are taxable, but a large percentage of recipients haven’t been keeping up with those taxes.

Prior to receiving the unemployment checks, recipients could choose to withhold a portion of their payments, an approach that would ensure they weren’t required to pay all associated taxes after year’s end.

Buchheit estimated that only 50% chose that option. The other half of recipients will be on the hook for those taxes once they file.

“It has the potential to surprise some people,” he said. “For many people, this may have been the first time they’ve ever had unemployment (benefits). It is a process they aren’t familiar with.”

Pending legislation could provide some relief.

Democrats introduced a bill this week that would waive taxes on the first $10,200 in unemployment benefits that individuals received last year. Early estimates indicate that this would collectively save benefit recipients around $30 billion.

NEW WAY TO WORK

For local tax professionals, the heavy workload is not unusual for this time of the year. The way in which they’re approaching the work feels much different, however.

Roberts acknowledged that the ways of doing business have changed at his firm.

“We have changed some of the ways we work,” he said. “We sent out letters telling clients to drop off information, set up phone appointments and do stuff securely through our website. We tried to limit the actual amount of contact (with clients).”

Similar measures have been implemented at Buchheit Tax Service.

“We’ve moved away from in-person appointments,” Buchheit said. “We are trying to keep everyone safe.”

Despite this year’s delay, individuals still can do some legwork now to make sure they are ready to roll on Feb. 12.

The IRS has opened its Free File program for anyone who wants to get a head start on preparing a return. Similar programs through H&R Block and Turbo Tax also are open.

Local tax professionals acknowledge that the two-week delay, coupled with the changes to this year’s tax rules, could be a source of stress for some people.

Overall, however, Roberts believes clients are taking the changes in stride.

“The whole last year has been kind of a weird time,” he said. “People have learned to be a little bit more patient.”

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