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Everything You Need To Know About Filing Taxes During The Pandemic

Tax season is here again, and though in many countries that means simply waiting for your government to tell you how much you’ll get refunded or how much you owe, in the U.S. it means spending a few hours — at least — figuring out your own tax liability, or paying someone to do it for you. It’s no wonder that there’s been memes on how it’s like playing a guessing game with serious consequences if you get it wrong. You won’t actually go to jail just because you make a mistake on your tax return, but the larger point is that “filing taxes” is a simple term for what is often a convoluted equation — and it’s even more complicated to figure out in 2021 due to a number of COVID-related factors, such as stimulus checks and unemployment benefits. Ahead, we spoke to Kemberley Washington, CPA and tax analyst at Forbes Advisor, on what to look out for when filing taxes this year. Still haven’t gotten your stimulus? Claim it on your taxes “With the stimulus checks, the biggest thing this year is the Recovery Rebate Credit,” says Washington. “This is going to be for individuals who need to claim a stimulus payment, a person who has yet to receive their stimulus payment — the IRS has not issued it, or they received a partial payment. They may qualify for additional payment on their 2020 tax return.” Who would this apply to? “A person whose income decreased in 2020 may qualify because maybe in 2018 or 2019, they’ve made too much money to qualify,” says Washington. Since the direct stimulus payments used income from previous years, not from 2020, the rebate is a way for more people to collect their $1,800 from the first two stimulus checks. “It could also be a college student, a person who was claimed by their parents in 2018 or 2019, but is no longer a dependent,” she continues. “Also, if you had a new baby or adopted a child under the age of 17, you may now qualify for additional stimulus payments.” Washington emphasizes that the stimulus payments were not considered income and therefore are not taxed. But while the direct payments weren’t garnished if you owed back taxes, the rebate can be garnished for back taxes. In any case, if you owe any amount of taxes this year, that amount will be deducted from your rebate credit — so you may not necessarily receive the full $1,800 that many Americans were eligible for. Unemployment benefits will be taxed Unfortunately, unemployment benefits are considered income, and you may have to pay taxes on them if you didn’t already choose to have them withheld before receiving the benefits — which many people did not, either because they didn’t know how to or because they needed all the unemployment assistance they could get to survive the pandemic. “You will receive a form called 1099-G, which is going to indicate the amount of unemployment you received throughout the year,” says Washington. She notes that even if you opted to withhold unemployment taxes, you still have to report it on your tax return. Unemployment benefits are subject to federal taxes, and most states tax them, too. Only New Jersey, Pennsylvania, Virginia, Montana, California, and Oregon exempt unemployment from being taxed. Democrats have introduced a bill that would exempt the first $10,200 of unemployment benefits from federal taxes, but it hasn’t passed Congress yet. This doesn’t mean you’ll definitely owe taxes this year — your tax liability depends on a lot of other factors as well. But it’s important to remember that unemployment benefits will be a big component of how your 2020 taxes are calculated, and if you usually expect a certain amount as your tax refund, it may be lower than that this year. And this means that you may want to file as early as possible to figure out exactly how much of a refund you’ll get, or how much you’ll have to pay by April 15th. If you usually use a free or cheap tax filing software, you might also be wondering if unemployment will complicate your tax return so much that you won’t be able to file yourself. The good news, says Washington, is that some tax software already allows an easy way to include unemployment benefits on your tax return. Gig workers and freelancers must pay self-employment taxes If you did any gig work in the past year, and especially if it was your first time doing so, you’ll need to keep in mind that your tax situation is different. You’ll need to pay self-employment taxes, for one. “But also, not only are you responsible for self-employment taxes — you may be entitled to certain deductions to reduce those self-employment taxes,” says Washington. “For example, you may be able to take a home office deduction, you can take business mileage [deducations],” she continues. “You can also take off some of your cell phone expenses if you use it for business.” Unfortunately, as of the Tax Cuts and Jobs Act of 2017, this type of home office deduction isn’t applicable if you’re an employee who’s been working from home. “But if you’re an employee and also have some side income from freelancing, then you’re able to take it,” Washington says. A new tax credit rule for 2020 The Earned Income Tax Credit (EITC) is one of the most common tax credits that Americans with low to moderate incomes can take advantage of. If you’re eligible, you could receive anywhere from $538 to $6,660 in credits, depending on your household size and how many dependents you have. But this year, it’s important to keep in mind that there’s something called a “lookback provision” intended to help people whose earnings were drastically different in 2020 due to COVID. Washington explains that this provision allows you to look at your 2019 tax year, not just your 2020 tax year, to determine which would give you the highest amount of earned-income credit. “That’s what the lookback provision is there for, because they recognize that some people didn’t have earned income in 2020, and they would no longer qualify,” she says. The same modified rule applies to the Child Tax Credit this year. Okay, what if I owe taxes this year? Do I have to pay by April 15th? For most, Tax Day is April 15th this year. If you’re a Texas resident, or your ability to file a tax return has been affected by the recent winter storm in the state, the IRS has extended the filing and payment deadline to June 15th. If you haven’t been affected by the Texas disaster, you can easily request an extension on filing your tax return — but the deadline to make payments on owed taxes would still be April 15th. With that said, that doesn’t mean you have to pay all of it at once. “The first thing you can do is contact the IRS — and you can do so online; you can create an account online and create a payment arrangement,” says Washington. “So that’s one way you can do monthly payments.” You can also ask the IRS for a temporary delay on collecting your payment. “You can request, let’s say for instance, 120 days to pay this balance. The IRS is going to say yes, and what you’re saying is that within 120 days, you’re going to get this payment down to zero,” she explains. The bottom line is that the IRS is not looking to come after you, as long as you contact them to work out an alternate payment plan. If I’m expecting a refund, when will I get it? “If you’re a person who electronically files, you can expect that you’ll receive it within 21 days — and that’s normal,” says Washington. “But if you use a paper return, then you’re going to expect a lot of delays.” The IRS is still backlogged on tax returns from last year. If possible, you should definitely file your 2020 tax return electronically. If you need more information, create an IRS online account first Washington says that an IRS online account is a little-known feature that could help a lot of people who have questions. “Last year, many taxpayers had trouble reaching out to the IRS because it shut down operations,” she says. In fact, for a long time the IRS website explicitly discouraged people from calling them because phone lines were so overloaded. “But there’s a tool that you can use called the Online Account. You can actually look at previous tax returns, you can pull your tax documents from this year, you can set up payment arrangements, you can look at payment history, you can do so much within this tool that I think it behooves anybody to make certain that they have this set up just in case, instead of calling the IRS and waiting just to talk to someone.” Like what you see? How about some more R29 goodness, right here?What To Know When Filing Taxes For The First TimeShould You Do Your Own Taxes? When To Pay Vs Do AtTax Day Is July 15th: How To File An ExtensionHow You & Your Spouse Should File Your Taxes

source: yahoo.com