Pandemic Relief Includes Some Positive Changes for Tax Season
Don’t Let Pandemic Stress Make Tax Season Worse
Unfortunately, tax season is upon us again! Doing taxes has never been anyone’s idea of a good time, but after 12 months of pandemic, tax time might be more unwelcome than it has ever been.
It’s not just that people don’t like paying taxes either. According to a 2019 report from NerdWallet, there’s a lot of fear and anxiety, too. In 2019, 26% of Americans were stressed or anxious about taxes, 21% feared getting audited if they made a mistake, and 27% were worried about a mistake causing them to pay too much.
Believe it or not, there are actually some reasons to be less stressed about taxes this year because of COVID-19 relief efforts. The CARES Act made several positive changes to tax rules for 2020 because of the coronavirus. For example, the standard deduction increased to $12,400 for single filers and $24,800 for married couples filing jointly. Income tax brackets increased in response to inflation as well.
What is taxable?
- Federal stimulus checks are NOT taxable.
- Unemployment benefits are NOT taxable. Formerly, they were, but the most recent stimulus plan changed that in March 2021. For people who earned fewer than $150,000, unemployment benefits are no longer taxable, up to $10,200 for single adults or $20,400 for two workers who are married. If you had taxes withheld on unemployment benefits, you may be due a refund.
- If you received unemployment benefits and already filed your 2020 tax return, the IRS says DO NOT file an amended return until it provides guidance on how to do that.
- For people who received unemployment benefits and haven’t yet filed a 2020 tax return – the IRS has issued instructions: www.irs.gov/faqs/irs-procedures/forms-publications/new-exclusion-of-up-to-10200-of-unemployment-compensation.
Here are some tax deductions and credits to consider. Remember that if your 2020 income was reduced because of the pandemic, your eligibility may have changed. For example, if your income fell in the middle of the year, becoming eligible for tax credits might mean you can receive refunds of the taxes you paid earlier in the year.
If you itemize deductions, you can deduct up to 100% of your adjusted gross income. Even if you take the standard deduction, you can write off up to $300 of charitable contributions.
Earned income tax credit:
If you qualify for the EITC, you receive a credit that will reduce your taxes. It could save you from a few hundred to a few thousand dollars, depending on your income, your filing status and how many children you have. According to the IRS, if your earned income was higher in 2019 than it was in 2020, you can use the 2019 amount to figure your tax credit for 2020. Unemployment compensation might affect eligibility for the EITC, so be sure to consider that.
There are lots of possible business expenses that can be deducted if you are self-employed. Unfortunately, working remotely because of the pandemic does NOT qualify.
As usual, you can deduct medical expenses above 7.5% of your adjusted gross income. If your income fell in 2020, you might now be eligible.
Child tax credit:
Families can claim up to $2,000 per qualified child.
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