Under pressure from congressional lawmakers, the Internal Revenue Service announced Wednesday that the tax return filing and payment deadlines for individuals will move to May 17 from April 15. This reflects a continuing delay in processing returns and new requirements and benefits enacted under the $1.9 trillion coronavirus pandemic relief law earlier this month.
In testimony before the House Ways and Means Oversight Subcommittee, Rettig said he was concerned that wealthy taxpayers — those who would normally have owed penalties and interest for filing late — would have used the extra time to make investments.
"There's a large contingent of wealthy individuals in this country who do not make their estimated payments," Rettig told Rep. Brad Schneider, D-Ill.
These wealthy individuals take the money that should be "paid in estimated payment on a quarterly basis to the government and take the arbitrage and they invest it," Rettig said. "We're not going to give them a break of interest and penalties to do so."
Schneider said that the IRS decision not to fully extend the return filing postponement to estimated quarterly payments also affects small businesses and gig workers, many of whom have seen major swings in their income during the pandemic.
"There's so many people who are getting squeezed in this," Schneider said. "As we go forward, if there are ways for them to get assistance, that would be great."
Rettig said the IRS is aware that a large portion of small-business taxpayers do not have the funds to make that estimated payment due. He said the decision didn't come lightly, but was made after discussion inside the agency and with stakeholders outside the IRS.
Under the postponement, the IRS will allow individuals and those who pay self-employment tax to delay filing and paying taxes until May 17, when penalties and interest will start to accrue on unpaid balances.
Those who need more time beyond May 17 can still request an extension until Oct. 15 on Form 4868 to file tax returns, but the extension does not apply to tax payments, the IRS said.
Lawmakers were also concerned about a provision in the new law that exempts the first $10,200 in unemployment compensation from federal taxes for individuals with income below $150,000. They questioned Rettig about the need for filing amended tax returns and how the agency was combating identity theft in this area.
Rettig said that taxpayers who received unemployment benefits last year and already filed their 2020 returns should not file an amended return. He said the agency expects to issue guidance on that exemption and that it should be able to handle refunds without additional work from taxpayers.
He said some criminals have used taxpayer identities to receive unemployment benefits, but the real taxpayers have no idea of the scam until they receive a 1099-G form reporting compensation they never received.
"We encourage anyone in this situation to file an accurate return only reporting the taxable funds they actually received, report this fraud to the state agency that issued the 1099-G and ask the agency to issue them a corrected 1099-G showing the correct amount," Rettig said.
The issue was raised by Rep. Brad Wenstrup, R-Ohio, who unsuccessfully sought to have his legislation stopping the IRS from collecting taxes on fraudulently claimed unemployment benefits added to the pandemic relief bill in February.
Rep. Steven Horsford, D-Nev., said he was working with Senate Finance Committee Chair Ron Wyden, D-Ore., on legislation to modernize unemployment insurance compensation systems, which are hit by nearly $80 billion annually from sophisticated criminal rings.
Rettig said the IRS actively monitors criminal activity at the state level dealing with unemployment insurance compensation.
"We're very active in those arenas. You all see the same numbers that we do. It is staggering, and it goes into vulnerable populations, once again," he said.
--Additional reporting by Amy Lee Rosen. Editing by Neil Cohen.
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