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Survey Says Pandemic Tax Fallout Could Be Severe in 2021

Posted on Dec. 9, 2020

Two new taxpayer surveys indicate a lot of taxpayers are worried about paying their tax bills in 2021 — in part because so many couldn’t pay them in 2020.

Seventeen percent of laid-off Americans couldn’t pay their taxes in full by the extended July 15 IRS tax return filing deadline, according to an online survey of 1,000 adults commissioned by LendEDU, a consumer and business financial products advisory firm, and released December 8.

Ten percent of all taxpayers surveyed were unable to settle their tax debt in full in 2020, the Pollfish research firm discovered.

Meanwhile, the American Institute of CPAs survey of 1,636 adults released the same day found only about a quarter had adjusted their income withholding since the IRS issued its updated Form W-4, “Employee’s Withholding Certificate,” in December 2019.

Almost 30 percent of respondents reported receiving an unusually large tax bill or refund in the past three years, the AICPA-commissioned Harris Poll noted.

Together, the surveys could point to an unusually difficult 2021 tax return filing season, as millions of workers face reduced or absent income to pay taxes on previously healthy paychecks, while businesses struggle to survive coronavirus restrictions until a vaccine can be distributed and the economy recovers. 

Time to Adjust 

“Large tax bill recipients were often concerned, frustrated, disappointed and angry,” the AICPA said in a December 8 statement accompanying the survey results.

But there are things taxpayers can do now to relieve some of the angst, the association said.

Most taxpayers — 71 percent, according to the survey — prefer to pay more in withholding and get a refund later, the AICPA noted.

However, while the Tax Cuts and Jobs Act reduced tax rates, many people didn’t notice the marginal hike in their paychecks, the association said.

“People tend to overlook a few extra bucks in their take-home pay, but they sure notice when they get a $300 tax bill instead of a $1,500 refund,” said CPA Gregory J. Anton, chair of the AICPA’s National CPA Financial Literacy Commission, in the statement.

“This underscores why understanding and updating your tax withholding is so important — it directly impacts your budget,” Anton said.

For 2021 taxpayers, filing a new Form W-4 isn’t going to relieve their anxiety that they may face a larger tax bill because they relied on unemployment benefits (70 percent of all surveyed by Pollfish/LendEDU), or because they dipped into retirement funds (78 percent) or sold stocks (72 percent) to survive the pandemic year.

“Regardless of specific actions, it’s clear that paying 2020 taxes next year is going to be a mess for most and a struggle for those who had to resort to consequential financial decisions to survive the pandemic recession,” wrote LendEDU’s Mike Brown.

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