The multiple coronavirus aid packages signed by law contain a number of provisions related to taxes, including some that households should consider when filing their 2020 notifications.
"In 2020 and beyond, three huge tax laws were passed that affected all taxpayers," said Mark Steber, chief tax information officer for tax preparation firm Jackson Hewitt.
Tax day is later than usual this year as the IRS is extending filing and payment deadlines from April 15 to May 17 due to the pandemic. People in Texas, Louisiana, and Oklahoma have until June 15 due to winter storms.
Stimulus and auxiliary laws enacted by previous ones in the past year President TrumpDonald TrumpHow the United States Can Get Around Civics 101 Elon Musk asks Twitter for sketch ideas ahead of & # 39; Saturday Night Live & # 39; s performance and this year from President Biden
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"It is important for taxpayers to be aware of all of these various changes in tax law," said Adam Markowitz, a Florida-based agent who prepares tax returns for individuals and businesses. He recommended that people who are unfamiliar with the changes and are uncomfortable preparing their own taxes see a professional.
Here's what you need to know about COVID-19 relief laws and your taxes as the May 17th deadline approaches:
Stimulus tests
People can use their 2020 tax returns to claim Stimulus Payments that they are entitled to but have not yet received.
Coronavirus relief laws provide for three rounds of direct payments. In any event, individuals with incomes up to $ 75,000 and married couples with incomes up to $ 150,000 will be eligible for full payment amounts and the amounts will be decreased above these thresholds.
The IRS released the first two payment rounds last year and earlier this year. These prepayments were based on the individuals' tax returns for 2018 or 2019, but the final payment amount is based on the 2020 individuals tax returns. As a result, people whose income fell in 2020 or who had a new child may be eligible for more money when they file their tax returns that year.
If individuals have not already received the full amount of their first and second round payments to which they are entitled, they can apply for the "Refund Credit" for the amounts not received on their 2020 tax return.
Payments in the first round are up to USD 1,200 per adult and USD 500 per child, while payments in the second round are up to USD 600 per adult and per child.
The third round of payments, approved by laws passed in March, calls for payments of $ 1,400 per person. The IRS has started making these payments based on the individuals' returns for 2019 or 2020.
Some individuals are eligible for higher round third payments based on their 2020 income than their 2019 income. In these cases, the IRS will issue additional incentive payments to individuals after they file their 2020 tax returns.
The stimulus checks are not taxable income, so people don't have to pay taxes on funds already received.
Unemployment benefit
Coronavirus law, enacted in March, exempts the first $ 10,200 received as unemployment benefits in 2020 from federal income tax. This change, which applies to households with incomes less than $ 150,000, is designed to help the millions of Americans who lost their jobs during the pandemic.
Married couples filing together can receive unemployment benefits up to $ 10,200 for each spouse, which means couples can get up to $ 20,400 exempt from unemployment benefits.
Individuals who have not yet filed their 2020 tax return can take advantage of this tax exemption if they do.
Unemployment benefit recipients who filed their tax returns prior to the March Facilitation Act came into effect do not need to file amended returns to benefit from the exemption. The IRS said it will automatically issue refunds to taxpayers in that category, and it expects to issue those refunds this month.
Charitable donations
Also, under COVID-19 law passed last year, people who take the Standard Withholding can deduct up to $ 300 in charitable donations from their 2020 tax returns.
This is a change from most years ago, where individuals can only deduct charitable contributions by listing their deductions rather than taking the standard deduction. According to the IRS, around 87 percent of taxpayers took the standard deduction for their 2018 tax returns.
The $ 300 limit on deduction applies to both single applicants and married couples for 2020 tax returns. For 2021 tax returns filed next year, the married couple limit will be increased to $ 600.
Charitable contributions aren't the only area where coronavirus legislation has affected tax deductions. Legislation also directed the IRS to enact regulations that make it clear that educators can use an existing expense allowance to deduct the cost of personal protective equipment and cleaning supplies. The IRS issued these guidelines in February.
Earned Income Tax Credit and Child Tax Credit
The COVID-19 package, which Trump signed in late December, includes a provision that will allow taxpayers to use their 2019 income in lieu of their 2020 income when submitting their amounts towards the Earned Income Tax Credit and Child Tax Credit determine – two credits that are very important to low and middle income families.
This provision is intended to help ensure that people do not receive lower loan amounts on their 2020 tax returns as their incomes have fallen as a result of the pandemic.
The Biden Aid Package, approved earlier this year, includes enhancements to the Earned Income Tax Credit and Child Tax Credit, which will apply for the 2021 tax year.
Payouts from retirement accounts
The Coronavirus Relief Act passed last year provides tax breaks for people who withdrew from certain retirement accounts in 2020 due to coronavirus-related difficulties, e.g. B. traditional individual retirement accounts and 401 (k) accounts.
People under the age of 59 1/2 usually face fines when making withdrawals. However, these penalties will be waived for pandemic-related distributions in 2020.
Additionally, people can pay tax on their 2020 distribution amount over a three year period instead of paying tax on the full amount on their 2020 returns. If individuals repay the distribution amount to their retirement account within three years of the withdrawal, they ultimately owe no tax on the distribution money.
Retirement-related tax relief applies to coronavirus-related distributions of up to $ 100,000.