Tax filing season started on February 12, 2021. As complicated as 2020 was, taxes are typically no exception. But we’re here to make it a little easier! The IRS extended the deadline to file federal income tax returns for the 2020 tax year to May 17.
Here are three things you should look out for this tax season before you file:
1. The lookback provision for the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC)
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 includes a lookback provision that helps taxpayers who claim the EITC and the CTC. These are refundable tax credits for low– and moderate-income workers that help lower the taxes they owe and can even result in a refund.
The provision allows taxpayers to choose whether to use their 2020 earned income or “look back” to their 2019 tax return, for claiming the EITC and the CTC. This may help people whose credits would be smaller based on their 2020 earnings. The provision aims to help the millions of taxpayers who became unemployed, received reduced hours, or took salary cuts in 2020. Calculate your earned income online to decide which year is best for you.
2. The Economic Impact Payments (aka stimulus payments)
Two rounds of stimulus payments were issued, first under the CARES Act in March 2020 and second in December 2020. If you didn’t receive your stimulus payment in either of the rounds or received less than the full amount, you must file a 2020 return to get a Recovery Rebate Credit. This applies even if you don’t usually file a tax return. To claim the Recovery Rebate Credit, make sure you know the amount of any stimulus payments issued to you. This FAQ document has more information to help you through the process.
This does not, however, include the American Rescue Plan payments, which are for 2021.
3. Income tax on Unemployment Benefits
Around 40 million people received unemployment benefits in 2020. For families who made less than $150,000 in 2020, the American Rescue Plan exempts the first $10,200 ($20,400 for married couples) from federal income tax. Otherwise, unemployment benefits are taxable. President Biden signed the bill on March 12 and the IRS issued guidance to keep everyone updated.
If you received unemployment benefits last year, you will also receive Form 1099-G with the amount you were paid in 2020 and how much, if any, of your federal taxes you elected to withhold from your benefits.
This exception only applies for 2020. If you receive unemployment benefits in 2021, consider choosing to withhold a percentage from your benefits to cover tax liability for your 2021 tax return. If you’re interested in doing so, then send this form to the agency that pays for your benefits, unless they have their own.
If this sounds confusing, don’t worry, help is available. Here are 3 additional tips to consider:
- Free tax assistance may be available through VITA, Tax Counsel for the Elderly, and Code for America. And you may qualify for free tax filing software if your income is less than $72,000.
- The deadline to file your tax return is May 17, but anyone who needs more time can e-file an extension online—the extension is automatically granted, but you may have to pay interest on any taxes owed.
- Keep in mind, the fastest way to get your refund is to file electronically and have it direct deposited if you can.
The tax code can provide important economic support for women and families, especially this year, so file your 2020 taxes if you haven’t already.