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Tax season 2021: A lot of people are in for an unpleasant surprise

| Feb 9, 2021 | Tax Law

Tax season is upon us once again, but many taxpayers are about to get some very unwelcome surprises when they do their taxes. They may not get much of a return — or they may even owe taxes this year.

While that prospect might be dreaded, it is always best to understand the tax situation you face.

Why are refunds smaller and tax bills bigger this year?

There was a perfect storm of events that may put taxpayers into an uncomfortable financial position this year. Chief among them are the following two issues:

  1. An unusually large number of taxpayers received unemployment benefits this year, and those are taxable. Here’s the catch: Withholding was voluntary. If you didn’t opt to have taxes withheld from your unemployment because you needed every dollar at the time, you may be facing a tax debt to both the federal and state governments.
  2. The Tax Cuts and Jobs Act was enacted and changed how much was withheld from people’s paychecks. The idea was to minimize unnecessary withholding — but that also means minimizing the refunds many workers have come to rely on over the years for major expenses. The vast majority of people did not increase their withholding throughout the year to absorb the changes.

For people who rely on their tax returns to pay off holiday bills, catch up their winter utilities or afford a few major expenses each year, this tax season may come as a dreadful shock.

What if you owe taxes you can’t afford to pay?

You aren’t in an uncommon position. It’s generally advisable to pay what you can afford to pay and work out an agreement with the Internal Revenue Service (IRS) and your state and local tax authorities for the rest.

If you’re struggling with an unexpected tax bill, the worst thing you can do is pretend the problem doesn’t exist. Talk to an experienced advocate about your tax options today.