Tax Filing 2020 News You Need to Know!

.QUOTE (Compliments of NAEA) – “Tell me and I forget. Show me and I may remember. Involve me and I learn.” — Benjamin Franklin (1707 – 1790) Founding Father of the United States.

Important 2020 Filing Season Reminders

IR-2021-23, January 27, 2021. Following an unpredictable year with many changes and challenges, IRS shared important reminders for taxpayers who are about to file their 2020 federal tax returns. Following is a summary of reminders, read full announcement (IR-2021-23) for additional details.
Choose direct deposit — The safest, most accurate and fastest way to get a refund is to electronically file and choose direct deposit.

Earned Income Tax Credit — The Earned Income Tax Credit (EITC) can give qualifying workers with low-to-moderate income a substantial financial boost. IRS Tax Tip 2021-06, January 25, 2021. It not only reduces the amount of tax someone owes but may give them a refund even if they don’t owe any taxes or aren’t required to file a return. People must meet certain requirements and file a federal tax return in order to receive this credit.

Stimulus Money – Never mind the tax refund. Stimulus check money is why you should file early this year. Sure, you may get your federal tax refund quicker if you file as soon as the IRS started processing returns on Feb. 12. But this year, you have two more good reasons to start preparing now for tax season 2020. By setting up direct deposit with the IRS, you mostly likely will receive your third stimulus check sooner, especially if it happens during tax season. By filing as soon as you can, you’ll also be able to quickly recover any unpaid stimulus check money you’re owed. If you wonder if you’ll still get the stimulus money you’re missing if you file a tax extension, the answer is “Yes.” But you should know the only way you’ll get your missing stimulus money is by filing a Recovery Rebate Credit on your taxes — even if you’re not usually required to file taxes. So the longer you wait to file, the longer it’ll take to get your tax refund, which will include your missing stimulus payment.

Taxable unemployment compensation — Millions of Americans received unemployment compensation in 2020, many of them for the first time. In January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government Payments PDF from the agency paying the benefits. This form will show the amount of unemployment compensation they received during 2020 in Box 1, and any federal income tax withheld in Box 4. Taxpayers report this information, along with their W-2 income, on their 2020 federal tax return. 

Interest is taxable income — Many individual taxpayers who received a refund on their 2019 tax returns may have also received interest from the IRS. If so, you will receive Form 1099-INT, Interest Income, with reportable amounts in boxes 1, 3, and 8 of at least $10 (or at least $600 of interest paid in the course of your trade or business). Interest is still reportable income even if you don’t receive a Form 1099-INT.

Home office deduction — The Tax Cuts and Jobs Act (TCJA) suspended the home office deduction for employees for tax years 2018 to 2025. You can only take the home office tax deduction if you work from home and you’re self-employed, an independent contractor or working in the gig economy.

The gig economy — Any “activity where people earn income providing on-demand work, services or goods,” such as ride-sharing and delivery services, running errands, and selling products online. That means if you earned money from Uber, Lyft, Postmates, Instacart, Etsy, or a similar company, you may be on the hook for federal income taxes. Taxpayers must report income earned in the gig economy on their tax return. IRS is clear about when you have to pay self-employment taxes on your side gig: Once you make $400.

Charitable donation deduction for people who don’t itemize — Individuals who take the standard deduction generally cannot claim a deduction for their charitable contributions. However, the CARES Act permits these individuals to claim a limited deduction on their 2020 federal income tax returns for cash contributions made to certain qualifying charitable organizations and still claim the standard deduction.

Disasters such as wildfires, flooding or hurricanes — Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.

TAX NEWS FOR EMPLOYERS

New Law Extends COVID Tax Credit for Employers Who Keep Workers on Payroll
IR-2021-21, January 26, 2021. IRS urges employers to take advantage of the newly extended employee retention credit, designed to make it easier for businesses that, despite challenges posed by COVID-19, choose to keep their employees on the payroll.

IRS explains extended payroll tax due dates
The IRS has issued guidance (Notice 2021-11) to address how employers who elected to defer certain employees’ payroll taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to the employee retention tax credits previously made available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including modifying and extending the Employee Retention Credit (ERC), for six months through June 30, 2021. Several of the changes apply only to 2021, while others apply to both 2020 and 2021.

As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.

WHAT ELSE HAS CHANGED?

All Taxpayers Are Now Eligible for Identity Protection PINs
IRS Tax Tip 2021-07, January 26, 2021. IRS has expanded the Identity Protection PIN Opt-In Program to all taxpayers who can verify their identity. The Identity Protection PIN is a six-digit code known only to the taxpayer and to IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers’ personally identifiable information.

Important Filing Season Dates
Friday, February 12. IRS begins 2021 tax season. Individual tax returns start being accepted, and processing begins.

Thursday, April 15 Due date for filing 2020 tax returns or requesting extension of time to file.

Thursday, April 15. Due date for paying 2020 tax owed to avoid owing interest and penalties.

Friday, October 15. Due date to file for those requesting an extension on their 2020 tax returns.