If you haven't filed your 2020 tax return, the clock is ticking.
The deadline for 2020 returns is Monday, May 17. In March, the IRS pushed back the date for individual returns due to the coronavirus pandemic, giving most Americans an extra month to file.
Even with the additional time, many Americans procrastinate preparing and filing, an often-confusing task made more complicated by the health crisis and legislation passed in the middle of this year's filing season.
"It's always important to file your taxes, it's your obligation," said Allison Koester, a former CPA and associate professor at Georgetown University's McDonough School of Business.
More from Invest in You:
You can still tap free money for college — here's how
Biden proposal will make free school lunch available to 29 million children every summer
Paycheck Protection Program has run out of money for most borrowers. What you need to know
One of the most important reasons to file a tax return is to claim any refund you're owed by the IRS. Through April 30, the IRS has received more than 121 million individual tax returns and processed more than 110 million. So far, the agency has sent out more than 81 million tax refunds to Americans with an average check of $2,865.
That refund is often the largest windfall families receive throughout the entire year and can be helpful in paying down debt, boosting savings and more. This year especially, after the impact of the coronavirus pandemic, Americans should claim any money they're owed.
It's important to remember that a refund isn't free money, according to Rebecca Thompson, director of the Taxpayer Opportunity Network at Prosperity Now, a nonprofit. It's money that you've overpaid the U.S. government, basically an interest-free loan. You are entitled to get it back and should do so.
While May 17 is the deadline for this year's taxes, it's also the date by which you must claim any refunds from 2017. Taxpayers have three years to claim refunds from the IRS. In April, the IRS said they still have $1.3 billion in unclaimed refunds from 2017.
"If they don't [file] then that money is lost and it becomes a donation to the treasury," said Thompson.
Claim those credits and more
This year there are other reasons why submitting information to the IRS is important, even for those who don't traditionally file.
For one, filing a return and claiming the recovery rebate credit is the only way to get any economic impact payment that you may be owed, or get a "topped up" amount if your circumstances changed – like if you had a baby in 2020 that was eligible for a stimulus check.
The American Rescue Plan also made some tax changes. For the millions of Americans that lost work due to Covid, the first $10,200 of unemployment benefits is now exempt from federal taxes for those with income under $150,000. The exemption is $20,400 for a couple with the same income.
Parents also need to file a 2020 tax return to make sure that the IRS has accurate information for them to claim the enhanced child tax credit, which is scheduled to begin monthly payments in July.
Penalties and Extensions
If you fail to file, you could miss out on refund money and potentially accrue penalties and interest if you owe the IRS.
"It is imperative for anybody who thinks they will owe to make sure that they get that tax return in or that they file an extension and it's accepted by the IRS and that they do that by the filing deadline," said Thompson. "If not, they will get hit with penalties for failing to file and failing to pay."
Of course, even if you file an extension, you may still face penalties for not paying your taxes, she said. The deadline for payment is May 17 regardless if you file an extension or not.
Still, filing an extension can be helpful to some, and the penalty for paying what you owe late is generally small.
"There is no shame in filing an extension," said Koester. To get an extension, you must submit form 4868 to the IRS. You then have until Oct. 15 to file.
Just get it done
In some ways it has never been easier to file taxes due to several online programs that help people prepare and submit their returns.
"You still have time to collect your documents and file before the deadline," said Lisa Greene-Lewis, a CPA and tax expert for TurboTax.
To ensure preparing and filing your return goes smoothly, she recommends gathering all income statements, accurate Social Security numbers for you and any dependents, correct bank information and receipts for charitable donations or items to deduct.
She also recommends filing online and selecting direct deposit for any refund you're owed as it's the fastest way to submit your information and get your money back.
Thompson agrees. "The IRS doesn't want your paper return," she said.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.