Edward A. Zurndorfer

The Treasury Department and the Internal Revenue Service announced on March 17 that the due date for filing 2020 individual federal income tax returns has been extended to May 17, 2021. This means that individuals who owe on their 2020 returns can postpone their payments until May 17 without penalties and interest, regardless of the amount owed. Penalties, interest and additions to taxes owed will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individuals will automatically avoid interest and penalties on the taxes paid by May 17, 2021.

Individuals do not need to file any forms or call the IRS to qualify for this automatic federal income tax filing and payment relief. But those individuals who will need additional time to file beyond the May 17th deadline can request a filing extension until October 15, 2021 by filing Form 4868. Filing Form 4868 gives individuals until October 15, 2021 to file their 2020 income tax returns. But filing Form 4868 does not grant an extension of time to pay any taxes due on their 2020 returns. Individuals should be sure to pay any federal income taxes due by May 17 to avoid interest and penalties.

Those individuals who are due a refund on their 2020 income tax returns are highly encouraged to file their 2020 returns as soon as possible. Most federal income tax refunds associated with electronically filed returns are paid within 21 days.

Note that the tax filing deadline postponement to May 17, 2021 only applies to individual federal income tax returns, not to state income tax returns. There are 42 states plus the District of Columbia that impose state and local income taxes. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges individuals to check with their state tax agencies for those details.

The Commonwealth of Virginia has announced that its deadline for filing 2020 state income tax returns has also been extended to May 17, 2021. The State of Maryland recently announced its 2020 filing deadline to July 17, 2021.

Return of RMDs in 2021

Those individuals who reached age 70.5 during 2019 or earlier did not have to take a required minimum distribution (RMD) for the year 2020. But for 2021, they will have an RMD due by Dec. 31, 2021. Normally, the first year RMD is due by April 1 following the year an individual becomes age 70.5. However, under the SECURE Act passed into law in December 2019, individuals born after June 30, 1949 have a required beginning date (RBD) of April 1 following the year they become age 72. In short, this means no individual has a first year RMD due no later than April 1, 2021.

Those individuals born between July 1, 1949 and December 31, 1949 will reach age 72 during 2021. They will have their first RMD due by April 1, 2022 and their second RMD due by December 31, 2022. To avoid having both RMDs included in their income for the year 2022, these individuals should consider taking their first RMD by December 31, 2021 instead of waiting until April 1, 2022 (thereby including that RMD in 2021 income). After the first year, all RMDs must be made by December 31st.

Traditional IRAs, qualified retirement plans (like 401(k) and 403(b) plans) and the Thrift Savings Plan TSP) are all subject to the RMD rules. An IRA trustee or qualified retirement plan administrator must either report the amount of the RMD or offer to calculate it for the IRA owner or qualified retirement plan participant. Each year, the TSP calculates the RMD for TSP participants who have retired from federal service and who have reached their RBD. In January of each year, the TSP notifies these TSP participants what their RMD is for that year.

Calculating the traditional IRA RMD depends on the type of IRA and if there is more than one IRA from multiple accounts. Not taking an RMD or not taking enough could result in a 50 percent IRS “excess” tax penalty on the amount not distributed.

For those individuals who have TSP accounts, there is an exception to taking the TSP RMD. If a TSP participant has reached his or her RBD but is still in federal service, then there is no TSP RMD until April following the year the participant retires from federal service. However, if the TSP participant also owns traditional IRAs and qualified retirement accounts (that they participated in while working in private industry), the traditional IRAs and qualified retirement account are still subject to the RMD rules even though the TSP participant continues to work in federal service. One way of avoiding those RMDs is for the TSP participant to directly transfer all of the traditional IRAs and qualified retirement accounts into the traditional TSP. The TSP participant may do so by obtaining, filing out, and submitting Form TSP-60 (Request for a Transfer Into the TSP). Form TSP-60 may be downloaded here).

   Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those, Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.