The spiraling health effects of the pandemic, financial uncertainty, and the economy prompted the IRS to adopt some changes for the 2021 tax season. Let’s review the IRS tax standards for the 2020 tax year and what has changed.
When is the Tax Filing Deadline?
The effects of COVID-19 have extended this year’s IRS tax deadline. The IRS recently pushed the deadline for all federal tax returns and payments to May 17, 2021. Should you get an extension, you have until October 15, 2021 to file your 2020 tax returns.
What are the Big Changes for 2020 Taxes?
Standard DeductionsTax Credits
- Earned Income Tax Credit: EITC refers to the refundable credit offered to low- and middle-income workers earning up to $56,844 during the 2020 tax year. Depending on your income, filing status, and number of children, the tax credit can save you a few thousand dollars on your taxes. If your EITC reduced your tax to less than zero, you might qualify for a refund.
- Child Tax Credits: If you have kids, you can claim up to $2,000 per qualified child as a tax credit on your 2020 taxes. Income limits for the child tax credit range from $200,000 for single parents to $400,000 for married couples. Notably, because it is a returnable credit, you can get a maximum of $1,400 per child as a refund.
Retirement Contributions
The IRS recently announced higher 2020 retirement plan contribution limits for 401(k) and other plans. The 2020 retirement contribution for your 401(k) is now $19,500 from $19,000 in 2019. The 401(k) catch-up contribution limit is raised to $6,500 for workplace plans in 2020 from $6,000 in 2019. However, the amount you can contribute to an Individual Retirement Account remains at $6,000.
Health Insurance HSA amounts
If you dealt with massive medical bills last year, you could benefit from some tax relief in 2020 taxes. Notably, you can deduct any medical expenses above 7.5 percent of your adjusted gross income. Remember to itemize your deductions so that the expenses on your tax return are written off. Additionally, if you did not max out your medical insurance contributions in 2020, you have until April 15, 2021 to do so. Importantly, the HSA contribution limits have been raised albeit modestly. Currently, you can contribute up to $3,550 for yourself or $7,100 for families for the 2020 tax year.
How Does COVID-19 Impact 2020 Taxes?
Stimulus Checks
As part of the CARES Act’s $2 trillion relief package, millions of Americans received stimulus checks to cushion them against the pandemic’s impacts. The best news is that the stimulus check will not count as taxable income in the tax year 2020 since it is treated as a refundable tax credit for the year 2020.
Paycheck Protection Program (PPP) Loans
The CARES Act also included Paycheck Protection Program (PPP) loans given to struggling businesses. Provided the loans were used for eligible business expenses, they will be “forgiven” for the 2020 tax year. Any qualified expenses that you paid using the loans will be deducted from your taxable income.
Unemployment Benefits
The passage of the American Rescue Plan (ARP) in March 2021 changed the tax implications for the unemployment benefits:
- The first $10,200 of unemployment benefits is now tax-free if your annual household income is less than $150,000.
- If your unemployment benefits are more than $10,200, you should report the excess as taxable income and pay taxes on it.
If I Owe Taxes Or Will Owe Taxes And Can’t Pay, What Are My Options?
If you can’t pay the full amount of 2020 taxes you owe, you’ll still need to file by May 17th. Pay as much of the taxes owed as possible to avoid penalties and interest. If you need additional help, we’re here! Start by taking our free online evaluation to see how we can help.
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