April 2021 Individual Due Dates

A friendly reminder for April 2021 Individual Due Dates.

April 12 – Report Tips to Employer

Are you any employee who works for tips? If you received more than $20 in tips during March, you must report them to your employer. Do so on IRS Form 4070 no later than April 12.

April 15 – Taxpayers with Foreign Financial Interests

A U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities, or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114. File the form electronically. As the Treasury does not accept paper forms. File the form with the Treasury Department (not the IRS) by April 15, 2021. You may receive an extension to file up to 6 months, automatically. This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2020. Feel free to contact our office for additional information and assistance filing this form.

April 15 – The Normal Tax Filing Due Date has been extended to May 17, 2021

The IRS has extended the normal April 15 individual tax return due date to May 17. Caution: the extension does not apply to the 2021 estimated tax payment which is still due on April 15, 2021.

Most Important April 2021 Individual Due Date

April 15 – Estimated Tax Payment Due (Individuals)

It’s time to make your first quarter estimated tax installment payment for the 2021 tax year. Our tax system is a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include:

Payroll withholding for employees;
Pension withholding for retirees; and
Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

Underpayment Penalty

When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points.

How to Avoid The Underpayment Penalty

Federal tax law does provide ways to avoid the underpayment penalty. There is no penalty if the underpayment is less than $1,000. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

The first safe harbor is based on the tax owed in the current year. There is no penalty if your payments equal or exceed 90% of what is owed in the current year.
The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

Examples of Safe Harbor Prepayments

Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

This example underscores the importance of making sure your prepayments are adequate. Especially true if you have a large increase in income. Examples may include if you receive a large gain from the sale of stocks or a sale of property. Another example of increased income would include if large bonus is paid out, or when a taxpayer retires. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.