With the extended Tax Day deadline of May 17 set by the IRS rapidly approaching, there are some helpful things to keep in mind. This is particularly true given that filing taxes this year is likely to be extra important for some people.
There are a number of important changes and quirks unique to this year that people should keep in mind as they prepare their 2020 returns. First, the American Rescue Plan passed in March contains a number of important COVID-relief measures that eligible Americans can take advantage of when filing their 2020 tax returns. These include recovery rebate credits for people who did not receive all of the money that they were eligible for during the first two rounds of direct federal stimulus payments, an earned income tax credit for low-income workers, child and child care credits, a saver’s credit for those who contributed to an IRA, and credits for older Americans and those with disabilities.
For the millions of Americans that have found themselves working from home during the pandemic, there are also some important points to keep in mind. Unfortunately, those who have been working from home but who are W2 employees cannot write off a home office and are not eligible for work from home reductions (self-employed workers can, of course, can still take advantage of tax-saving options available to them). Those who live in one state but work in another should also be mindful of how their filing status may have changed if they have been working from home this past year.
For many people, federal stimulus payments are also deeply tied to their 2020 tax returns. The IRS’ most recent batch of third-round stimulus payments of up to $1,400 was largely focused on those Americans for whom the IRS did not have a record of until they filed their 2020 tax returns. The IRS is also continuing to send out what it refers to as “plus-up” payments, or supplemental payments being sent to those people whose 2020 tax returns indicate that they are eligible for a larger stimulus payment following a loss of income or change in dependent status.
People should also rest easy knowing that federal stimulus payments are not taxed like income and cannot be taken away from you even if you owe money on your taxes – though they can still be garnished for unpaid private debts such as medical or credit card bills.
There are also a number of deductions not tied to COVID-relief, such as those for charitable donations, school expenses, and unusual business expenses, that people should keep in mind.
The final thing to keep in mind with regards to filing 2020 tax returns is that the IRS is currently facing a major backlog of unprocessed returns. This means that any returns filed between now and the May 17 deadline will likely take longer than usually to process and may result in delays in people receiving their refunds.