The April 15 deadline to file 2020 income taxes is more than a month away, but the tax season is already in full gear.
Justin Carr of Drenda’s Fast Tax said earlier this week that his business has already done 500 returns this year and that he worked 107 hours the previous week.
With a new year often comes changes to the tax code, and this year is no exception — especially because of the COVID-19 pandemic that has held the country in its grip for the last year.
One change is related to the stimulus checks that most Americans received in 2020.
“On the stimulus checks, none of that money is taxable,” Robert Whelan, accountant and owner of Robert Whelan CPA, said. “But we need to reconcile it on the 2020 tax return. And if they qualified (for the stimulus) and they didn’t get the check last year, or a check this year, there’s a possibility that they would get their refund (as a) credit on the 2020 tax return.”
Anyone who did not receive an economic impact payment, also known as a stimulus check, in 2020 can claim up to $1,200 (individuals), $2,400 for married couples and an additional $500 for each qualifying child — the same amount as the original checks. A qualifying child is defined as any child that qualifies for the child tax credit, which is a dependent child under age 17. Dependents claimed on someone else’s tax return do not qualify for the credit.
Another change because of the pandemic is related to retirement plan distributions, re-contributions and loans. For starters, in the case of a “coronavirus related distribution” made during last year, the 10% early withdrawal penalty does not apply. Also, maximum loan amounts from retirement plans are increased and repayment due dates are delayed one year. Those distributions from retirement plans are spread out in taxable income over a span of three years.
Some of the other new provisions of the tax code include:
• Employers that paid the principal or interest of an employee’s qualified student loan between March 27, 2020 and the end of that year do not have to count those payments against the employee’s taxable income.
• Up to $300 of qualified charitable contributions in 2020 are deductible as above the line deductions in calculating adjusted gross income without the taxpayer having to itemize deductions.
• Starting at the beginning of 2020 for distributions from health savings accounts and Archer medical savings accounts, qualified medical expenses are no longer limited to those medicines and drugs that are prescribed by one’s doctor. As a result, all medicines and drugs can be reimbursed tax free without a prescription or a doctor’s recommendation.
The Internal Revenue Service reminds taxpayers that they can prepare and file their tax returns electronically with IRS Free File, which offers brand-name tax software for taxpayers with an income of $72,000 or less in 2020. Taxpayers who earned more can use Free File Fillable Forms, the electronic version of IRS paper forms. Taxpayers can get started at IRS.gov/FreeFile. IRS Free File also lets taxpayers get an automatic extension of time to file if they need it.
For those who file electronically, the IRS issues nine out of 10 refunds in 21 days or less, according to the IRS. And for those taxpayers who owe money, they can pay with electronic funds withdrawal for free. In addition to paying online, taxpayers who owe the government can pay using the IRS2Go mobile app on a smartphone or other mobile device.