Published on 21/03/2021
Despite a delay of a fortnight, the tax season started with a shorter window for filing your taxes. And as challenging as this financial year has been, there have been made a few changes for taxpayers. Read on to know more.
Claiming missing/additional stimulus checks
All stimulus checks of the first and second rounds have been sent by the IRS as of February 16. And if you have not received your check or have not received the full amount, you will have to claim it in your tax return for the year 2020.
You can also claim additional stimulus payment if your income declined in 2020 from what it was in the previous year. You are also eligible for additional payment if you brought in a child in 2020.
On the contrary, you will not be able to claim a Credit if you are not a U.S citizen or someone claimed you as a dependent in the year 2020. You will also have to forego all credits if you have received both first and second stimulus checks.
The Recovery Rebate Credit can be claimed by filling in the recovery rebate credit worksheet. You will have to answer a few questions in the worksheet to prove your eligibility which will then tell you the amount of credit you are eligible for. The credit will decrease the amount of taxes you have to pay.
Carryover pension for flexible spending accounts
If your Flexible Spending Account has any unused balance for the year 2020, you can get it carried forward to your 2021 plans. The Consolidated Appropriations Act 2021 allows taxpayers to carry forward their money. Remember, earlier the taxpayers were not allowed to carry forward the balance. Any unused money meant the money was lost. Taxpayers can claim these benefits on both health accounts also.
Surprise Bill or Reduced Refund for the unemployed
The beginning of the COVID-19 pandemic was marked by a staggering amount of job losses. The first quarter of the year saw over 6 million Americans apply for Unemployment Benefits. Although citizens were aided by the Federal Government while unemployment was at its peak, now is the time to pay taxes on it.
Unemployment benefits given by the Government are considered as an income and are thus, taxable. Citizens will be required to report unemployment benefits for the year 2020 in their tax returns.
Citizens who received unemployment benefits will also receive a Form 1099-G that they will have to fill amid the tax season. Make sure to report any withheld taxes on the form.
You may be exempt from filing a tax return on unemployment benefits if your annual income is below the IRS norms. However, if you are expecting a tax refund or have to claim a Recovery Rebate Credit, you should file taxes.
Claiming charitable contributions without itemizing
The March 2020 CARES Act allows taxpayers to claim a rebate for charitable contributions made in 2020 without having to itemize their taxes. Taxpayers can opt for the standard deduction and still claim a credit on charitable donations. Apart from a hefty rebate the new Act also allows taxpayers to deduct charitable donations up to $300 in cash. You can claim $300 in credit if you made charitable contributions in cash and have proof of it.
Personal Protective Equipment credit for teachers
Teachers are being allowed to claim a rebate of up to $250 for expenses relating to personal protection equipment purchased in 2020. Bills for masks, face shields, gloves, hand sanitizers, and other things can be given to get credit.
New Earned Income Tax Credit Rule
Unemployment in 2020 was at its peak due to global cues. Naturally, you will be qualifying for less credit as per the Earned Income Tax Credit Rule. The credit rule is based on your earned income. If you earned less due to unemployment or pay cuts, your earned income tax credit may be reduced.
However, the Taxpayer Uncertainty and Disaster Tax Relief Act 2020 was passed for this very reason. The new rule includes a look back clause. Taxpayers will now be able to choose between the 2019 and 2020 incomes to generate their earned income tax credit. Taxpayers can choose whatever year was best for them for higher credit.
The tax season this year can be grueling at the least a handful of changes and new clauses. Feel free to drop in your query at [email protected] and we’ll solve them to best suit your situation.