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In 2020, Americans experienced firsts across virtually every aspect of life. Now, with an extended tax deadline of May 17 approaching, the implications for such an unusual year have some people wondering how all those changes might affect their tax refund.
From job loss to new tax breaks for unemployment benefits, plus three economic stimulus payments, many Americans will see an impact to their tax refund. According to a survey by H&R Block, most tax filers have more questions about taxes than they did last year. The No. 1 concern on most taxpayers’ minds is how stimulus checks will impact their refunds (52%), followed by questions related to unemployment.
If you haven’t filed your taxes yet, you can find answers to some of this year’s most pressing tax questions with help from the experts at H&R Block.
The first thing to know about the 2020 stimulus payments is they are not taxable income, so you don’t need to report them as income on your tax return.
However, some life changes could mean even more money for you through the Recovery Rebate Credit. If you added a child to your family in 2020 or you’re filing taxes for the first time on your own, not as a dependent, you may be eligible for an additional stimulus payment when you file your return.
There’s also good news if your stimulus payments were too high because your income increased, or your kids turned 17 in 2020. You do not have to repay any overpayments and your refund won’t be reduced.
For the third stimulus payment, there are two ways you could receive additional stimulus money. Depending on when or if your 2020 tax return was processed, your third stimulus payment might not have reflected a new child or significantly lower income from 2019 to 2020. This could be fixed through a “plus up” payment later this year or on your 2021 return. For the “plus up” payment, the IRS will re-determine your eligibility for an additional payment after you file your 2020 tax return. If you are due more, you’ll receive another payment from the IRS for the difference.
When you file taxes next year, you could receive an additional payment on your tax return with the 2021 Recovery Rebate Credit if in 2021 you have a child, your income drops significantly or you file for the first time.
The American Rescue Plan Act passed by Congress in March gave tax breaks to the record number of people who received unemployment income in 2020. You can exclude up to $10,200 of unemployment benefits as income if your household income is less than $150,000.
If you already filed your 2020 taxes and your return included unemployment income, there is no need to file an amended return in most cases. In May, the IRS will begin calculating and issuing refunds for overpayments. However, because everyone’s situation will be unique, this benefit may make some people eligible for additional credits or deductions, including the Earned Income Credit. Working with a tax professional to evaluate if you have become newly eligible for a credit or to understand if your state tax return(s) will be impacted will help you know what actions you may need to take to ensure the best tax outcome.
Many Americans got creative to overcome uncertainty in 2020 and generate more income. You may not realize it, but if you earned money through gig work last year, like driving for a ride-sharing app, you’re likely self-employed.
It might surprise you to learn that unlike a paycheck from an employer, no taxes are withheld from income received from gig work. That means federal income taxes and self-employment taxes are due on your self-employment income and you are responsible for paying estimated payments or face penalties. Working with an H&R Block tax pro can help you understand your situation, explain the outcomes and help plan for the year ahead.
Wit so many changes in the past year and many people experiencing firsts like unemployment or gig work, it is important to understand your situation and file an accurate tax return. Getting help may be easy with franises like H&R Block, whether you prefer filing on your own or working with a tax pro – virtually, online or in-person. If you’re used to meeting your tax professional in person but want to stay socially distant, there are digital tools available.
You can drop off documents at a local office or send scans or photos of essential documents, and when forms are finished, you can review and approve them online. You can also use the myBlock app to get updates on your tax return, to connect with a tax pro year-round, explore mobile banking and plan for next year.