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What You Need to Know as a Taxpayer

Raleigh – Taxpayers get an extra month to file any type of federal return without late-filing and late-playing penalties or interest charges, but there is a five percent interest fee for state returns postmarked after Thursday, April 15.

Further, individuals with an adjusted gross income (AGI) less than $75,000 on line 11 of federal Form 1040 for 2020 or a couple with an AGI below $150,000 qualify for pandemic stimulus aid.

Those not getting the full stimulus money they truly qualify for can list the amount owed them on the 1040 form’s line 30 — entitled Recovery Rebate Credit.

The N.C. Department of Revenue mirrored the IRS’ automatic extension from April 15 to May 17 for most returns. However, the state is not granting time extensions for trust taxes such as sales and use or withholding taxes nor for estimated tax payments due this April 15.

Those who need more time beyond May 17 to file can request an extension until October 15 but will pay interest on taxes owed.

The automatic grace period is “for taxpayers to have more time to navigate the tax changes during this pandemic,” N.C. Treasury Secretary Ronald G. Penny stated in a press release.

Savings can be substantial. The IRS and the state normally each assess two separate fines on late filers. The federal and state penalty for filing late is each at five percent of the tax owed — per month up to 25 percent of the tax bill — and with a minimal federal penalty of $435.

The state penalty for paying late is steep at ten percent. The federal late-paying penalty is merely a half-percent. But it can compile and reach 25 percent of taxes owed.

Unlike the IRS, so far the state is retaining its interest charge. This is unlike a year ago, when interest was waived for three months to July 15, 2020.

The state tax interest rate is 5 percent for any payment late at any time this year, through June 30, the NCDOR website further states. Thus, a person owing $1,000 in state taxes would accrue $50 (or more if compounded) in interest for an entire year, or merely $4.17 percent for the first month that is the penalty-free extension.

‘Check is in the Mail’

Meanwhile, many taxpayers still await stimulus checks or prepaid debit cards. Those can help them pay— among other financial obligations — their federal and state taxes.

The Treasury Department issues relief paper “economic impact payment” checks in waves. The IRS notes in a release that for the third and latest round of stimulus checks, 90 million were sent in mid-March, more were scheduled to be mailed, and they should arrive as soon as in coming days.

There are several possible reasons for not yet getting a stimulus check. A common one is the IRS is first processing your 2020 tax return, to see if the filer is eligible for stimulus and for how much money.

A person can lose eligibility for the checks by not filing taxes in both of the prior two years (2019 and 2020) — even if the person typically earns too little to be required to file. The person can gain or regain eligibility by catching up on ’19 and ’20 returns.

The quickest way to receive stimulus checks is by setting up with the IRS direct deposit payments and receipts. It helps to avoid closing or substantially changing the bank account it is linked to — or else it can delay or prevent receiving the money.

Banks are authorized to reject depositing funds into the taxpayer’s account if key data is incorrect or recently changed — such as adding someone else’s name to the account. Banks also are obligated to enable a court-authorized debt collector to seize a person’s stimulus check money — equal to a payment owed.

$timulus Credit, Eligibility

The stimulus checks were normally $1,200 a year ago. The two latest rounds were $600 late this past year, then $1,400 more now to total $2000. The $1,400 is for every person in a household with a valid social security number. A family of four gets $5,600 for two parents and two dependents.

To claim a full Recovery Rebate Credit, a taxpayer must qualify with an AGI below $75,000 individually or $150,000 for a married couple filing jointly.

Individuals whose amount is between $75,000 and $80,000 are to get their $1,400 check reduced by $100 for every $1,000 over $75,000. They can file that reduced amount owned them on 1040, line 30.

No stimulus checks go to single taxpayers who earned over $80,000 in the latest tax return they filed, or couples earning over $160,000.

Eligibility most directly applies to income in 2020, the prior full tax year. However, one’s income eligibility can vary from tax year to year. That can explain getting stimulus money in one year but not the year before or after it. The IRS initially checks for the taxpayer’s latest federal return on file. That may be the latest one for 2020, or instead for 2019.

For instance, if a single filer had an unusually good year financially in 2019 and has not yet filed taxes for 2020, then the IRS presumes the person again does not qualify unless shown otherwise. This is even if the taxpayer’s recent tax filings have been far below $75,000.

The burden of proof is upon the taxpayer. Thus, the person should file for 2020 pronto if below $75,000.
Check with a tax preparer for further details or clarification.

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