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Four Things to Look for This Tax Filing Season
May 17th is the deadline to file your taxes! After the long and difficult year we’ve had in 2020, it is more important than ever that you file your 2020 taxes to take advantage of new and expanded tax benefits.
Here are four things you should look out for this tax season before you file:
1. Advance Child Tax Credit payments
The Child Tax Credit (CTC) is a refundable tax credit that helps low- and moderate-income families meet the costs of raising children. Recently, the American Rescue Plan Act of 2021 (“Rescue Plan”) expanded this credit—it now provides up to $3,600 per child under age six, and $3,000 per child ages six to 17. Additionally, families can receive advance payments on their CTC starting in July, for up to half the total amount of the credit.
To make sure the IRS has the most up-to-date information for your advance payments, it is important that you file your 2020 taxes this year, even if you don’t usually file. For more Rescue Plan and COVID-19 benefits you can claim this year, check out this fact sheet.
2. The lookback provision for the Earned Income Tax Credit and the Child Tax Credit
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 includes a lookback provision that helps taxpayers who claim the CTC and the Earned Income Tax Credit (EITC), which benefits low- and moderate-income workers and their families.
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.
3. The Economic Impact Payments (aka stimulus payments)
Two rounds of stimulus payments were issued in 2020, first in March 2020 and second in December 2020. If you didn’t receive your stimulus payment in either round or received less than the full amount, you must file a 2020 return to get a Recovery Rebate Credit, 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.
Even though the Recovery Rebate Credit does not apply to the third round of stimulus payments under the Rescue Plan, filing a 2020 tax return may help you receive the correct amount of the Rescue Plan stimulus payments (which will be distributed throughout 2021).
4. 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.
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.
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 17th, 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.
