“This year’s tax season will be unusually busy for both taxpayers and the IRS as many aspects of the coronavirus relief measures passed in 2020 will impact our tax returns,” said Garrett Watson, Senior Policy Analyst at the United States. Tax Foundation.
The Benefit: The sooner you file your taxes, the sooner you can get a new stimulus check and speed up the delivery of any missing money you owe. “The IRS is encouraging taxpayers to file electronically to avoid delays in processing paper returns, as the agency is still dealing with a significant backlog of paper correspondence from last year,” said Watson.
With that in mind, here’s everything you need to know about the major tax changes for 2020. And if you need help navigating the process and filing electronically, be sure to check out our picks for.
First, some good news. If you have afrom the CARES law of March or the incentive law of December, which does not count as taxable income and does not affect your return. Those payments also don’t count as income to determine your eligibility for federal government assistance or benefits programs. ( .)
Missing claims to incentive payments
If you were eligible to receive all or part of theper person or the per person, but it never arrived (or gave your ), you can claim your missing money on your 2020 tax return as a . This credit increases the size of your total tax refund or decreases the amount of taxes you owe.
You file the Recovery Rebate Credit on the 2020 Form 1040 or Form 1040-SR to claim a catch-up incentive payment. The IRS’s Recovery Rebate Credit worksheet can help you determine if you’re missing a payment and, if so, for how much. We have full instructions on this.
If you don’t usually file a tax return, you might be, On or fail to meet the required income threshold – but think you owe incentive money, you must file a return for 2020. Our step-by-step guide explains it exactly . Note that non-affiliates often qualify for the IRS Free File program and would not have to pay to file a federal return.
For tax year 2020, the standard deduction is $ 12,400 for single files (an increase of $ 200) and $ 24,800 for married couples filing jointly (an increase of $ 400). For heads of households, the standard deduction is $ 18,650 (an increase of $ 300). These increases are the result of inflation adjustments. (Learn more.)
Deductions from Charitable Donations
This year,to eligible charities – even if you don’t specify. A temporary provision of the CARES Act intended to encourage donation, this deduction cannot be carried over to subsequent years. You can search for eligible organizations with the tax-exempt organization search tool at IRS.gov. (Learn more.)
Employers can now contribute up to $ 5,250 per year to an employee’s student loan – and it’s tax-free for both employer and employee as long as it includes payments made March 27, 2002 through December 31, 2020. (More information.)
IRAs and Retirement Plans
Thefor IRAs and retirement plans for 2020. Since those RMDs count as taxable income, it’s like getting a tax break if you don’t accept the benefits. (Learn more.)
Earned tax credit
This tax credit is designed for people with lower income and can lower your taxable income and wages. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, part of theyou can use your earned income for 2019 or 2020 to calculate your 2020 tax credit – a potentially important provision for people who lost their jobs during the pandemic. (The higher the income, the greater the tax credit.)
One thing to note, claiming this credit may cause the IRS to ask for additional information, which can delay your refund.
Child tax credit
As with the tax credit earned, theis designed to benefit working families by enabling them to claim up to $ 2,000 per eligible child through a refundable credit. But this year, you can use your 2019 earnings instead of 2020 to determine if you qualify for the child discount, increasing the total amount of refundable credits you can receive for qualified children under the age of 17.
You can use this IRS tool to determine if your child or dependent is eligible for the credit. As with the tax credit earned, claiming this credit may prompt a request for additional information, which may delay your refund.
Health flexible spending
If you have a flexible health care spending plan, that’s good news: The tax-free contribution limit has been raised to $ 2,750 – $ 50 more than last year. (Learn more.)
Some medical expenses are tax-deductible – and Congress has passed a more generous allowance for what you can deduct as part of the December incentive bill. Rather than spending that exceeds 10% of your– as originally planned – you can now deduct medical expenses that exceed 7.5% of your AGI. You’re welcome! (Learn more.)
Can I deduct work from living expenses?
No, not unless you are self-employed. The Tax Cuts and Jobs Act suspended tax credits for home office deductions until 2025. Note that this may change next year if Congress chooses to provide more tax credits in future COVID-19 exemption legislation.
You can find more information about all of these tax changes on the IRS website and on CNETsteam has prepared , including a series of articles covering the 2020 tax season from every angle.
More tax advice for 2021