Tax season kicks off on Monday: Everything taxpayers need to know

Americans can officially start filing their individual income tax returns for 2021 on Monday.

But the season is starting with a heap of challenges, and the Internal Revenue Service is urging taxpayers to file as soon as possible as the agency grapples with a massive backlog of unprocessed returns. 

Here's what you need to know:

When is the deadline to file taxes?

The tax-filing season will end on April 18 this year for most individuals, rather than the usual deadline of April 15, because that's when Emancipation Day will be observed in Washington, D.C.

IRS TAX-FILING SEASON TO KICK OFF ON JAN. 24

"As of right now the deadline is April 18," Eric Bronnenkant, head of tax at online financial adviser Betterment, told FOX Business. "But if you asked me six months ago, I would’ve said that sounds good, I don’t think we’re going to get another change this year. But after living through delta and omicron, obviously my opinion has changed."

Will the IRS extend the deadline again?

The IRS has said that it will not extend the deadline beyond April 18, as it did in both 2020 and 2021 in order to help Americans who were struggling financially due to the coronavirus pandemic.

However, experts are skeptical, given the deluge of unprocessed returns that the IRS is still working its way through. 

"There's a much higher possibility that we might get pushed out to May, June, July or something like that," Bronnenkant said. "As of today, it's April 18, but be prepared for the reasonable possibility that it might get pushed out some."

How do I apply for an individual tax extension?

If you’re an individual, you can request an extension online by filling out Form 4868 using the IRS’ "Free File" tool. You need to submit the form by April, or print the form and mail it to the IRS address for your state, making sure it's postmarked by April 18. Once you file the extension, you have until Oct. 17, 2021, to file your taxes.

However, there are pros and cons to requesting an extension.

It can give filers more time to thoroughly review their return and take advantage of all of the tax benefits, like various deductions and credits, that are available to them to help them reduce their liability.

By pushing back the filing date, you can also avoid a failure-to-file penalty – an extra 5% per month on the unpaid amount, which can add up to 25% of the tax due. If you file for an extension, you have until Oct. 15 before the penalty starts accruing.

Experts caution that filing for an extension does not mean you can delay paying the government the taxes that are owed.

"Extension to file is not an extension to pay," Bronnenkant said. "A common misconception is that you get more time to pay, and that’s not true."

How do I get the rest of my child tax credit?

Taxpayers will also have to reflect the monthly child tax credit payments and the stimulus checks they received in 2021 on their returns, further complicating matters and increasing the likelihood of errors and delays in processing returns.

Families that received monthly installments of the boosted child tax credit last year will receive a letter – called Letter 6419 – from the IRS informing them of the total amount of the advanced payment they received and the number of qualifying children used to calculate the payments.

Because at least half of the enhanced credit will be paid out as a lump sum when parents receive their 2021 tax return, recipients should keep the letter and use it to accurately reconcile the credit they already received when filing their taxes this year. The information is pertinent to determining how much more money families receive from the credit when they fill out Schedule 8812 and Form 1040.

The IRS said earlier this month that it began issuing letters on child tax payments and will continue through the first part of the new year. An estimated 36 million Americans received the payment last month. 

If families opted out of the monthly payments, they can claim the full amount of the child tax credit on their 2021 federal tax return. This also applies to families who don't normally need to file a tax return. 

The IRS has warned of a 'challenging' tax season. How could that affect taxpayers?

Government officials are predicting a "frustrating" season for taxpayers as the IRS grapples with a backlog of returns from previous years.

The difficulty stems from a massive pileup of unprocessed returns accrued during the pandemic. In a recent report to Congress, National Taxpayer Advocate Erin Collins estimated the IRS had a backlog of more than 8.6 million unprocessed individual income tax returns and 2.8 million business returns as of mid-December. It also had close to 5 million pieces of unanswered mail. 

By comparison, the IRS usually enters the tax-filing season with fewer than 1 million remaining items to address.

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There are several reasons for the delays. The IRS was grappling with office closures as well as the Herculean task of delivering millions of stimulus checks in 2020 and 2021, all while trying to adapt to major changes to the tax code in the middle of the filing season. The agency is also grossly understaffed; it has 20,000 fewer staff than it did in 2010, and its budget is roughly $11.4 billion – 20% less than it was in 2010, when adjusted for inflation, according to the Congressional Budget Office. 

On top of that, more than 20% of the IRS customer service workforce has been unable to work for pandemic-related health reasons over the last two years.

Experts have urged taxpayers to file their tax returns as soon as possible, noting that individuals do not need previous returns in order to submit their 2021 returns. Americans are encouraged to file electronically with direct deposit in order to avoid potential delays and receive their return within 21 days.