Like everything else in 2020, tax filing will also be unique
It’s the time of year to start thinking about taxes — but the upcoming filing season is going to be a bit trickier for many Americans due to rampant unemployment, working from home and general upheaval due to COVID-19.
Here are a few pandemic specific conditions to be aware of.
Such benefits are taxable income, which tax experts say may surprise some filers.
Workers are not required to have federal taxes withheld from their benefit payments. While people have the option to have the tax withheld, many do not.
It’s worth noting that unemployment benefits are all subject to federal taxes but not all states tax it.
Taxpayers who unintentionally do not include unemployment income on their taxes could face a tax bill, penalties or interest charged by the IRS, said Mark Steber, Jackson Hewitt’s chief tax information officer.
The drop in income from job loss could mean some households are eligible for deductions and credits that they did not qualify for in the past, such as the earned income tax credit or child and dependent care credit, said Lisa Greene-Lewis, a CPA and tax expert at TurboTax.
Unemployment:
Relief checks: As part of the CARES Act, a relief package
passed early in the pandemic, millions of Americans were given payments of $1,200 per adult and $500 per child. At last count, the IRS said 160 million payments totaling about $270 billion have been delivered.That money is not taxable. However, what many people do not realize is that the money they received is actually an advanced payment on the Recovery Rebate Credit for 2020 tax filers, said Dina Pyron, Global TaxChat Leader at Ernst & Young.
As such, people who did not receive their payment or only got a partial payment can resolve this issue on their 2020 taxes when they file. If you were overpaid, you will not owe.
Also, if you did not get a relief check because your income was too high, but it has since fallen in 2020 and made you eligible, you also can get the payment via this credit.
Working from home:
This became the norm in 2020 for many people, but most won’t likely be able to claim expenses for their new work-from-home setup.
The home-office deduction can only be taken by businesses or the self-employed. The tax law enacted in late 2017 did away with the ability of employees to claim any unreimbursed employee expenses, at least until 2025. Some states may allow people to deduct unreimbursed employee expenses though.
For those who might be able to claim this expense, GreeneLewis reminds people that the homeofficemustbe used “exclusively and regularly as your principal place of business.”
Charity: One bright spot is a new, temporary deduction for charitable donations.
As part of the CARES Act, taxpayers can deduct up to $300 for cash donations given to charity even if they choose to take the standard deduction. The IRS estimates that about 9 in 10 taxpayers now take the standard deduction.
So, if someone makes a cash donation before the end of the year they can get a deduction of up to $300 when they file.
Timing: The IRS has yet to announce when the tax filing season will open; it typically begins in early January.
The agency has brought some employees to the office. But faceto-face operations with taxpayers will remain limited.