Tax season 2021: Stimulus payments, unemployment and every other major change – CNET

Several things have changed on your 2020 tax return.

There are more reasons than ever to get started now on your taxes. The IRS will start processing 2020 returns on Feb. 12 -- while still slogging through last year's paperwork in an effort to work through stimulus payments. But stimulus checks aren't the only thing that may shake up your return this year. The IRS has adjusted individual income tax brackets for inflation and, with last year's CARES Act, changed many rules concerning charitable deductions, IRA and 401(k) plans and student loans. You're going to have to navigate them all to hit that April 15 tax return deadline.

"This year's tax season will be unusually busy for both taxpayers and the IRS, as many aspects of the coronavirus relief measures passed in 2020 will affect our tax returns," says Garrett Watson, Senior Policy Analyst at the Tax Foundation.

The upside: The earlier you file your taxes, the sooner you could get a new stimulus check and speed up the delivery of any missing money you're owed. "The IRS is encouraging taxpayers to file electronically to avoid delays in processing paper returns, as the agency is still digging out from a large paper correspondence backlog from last year," according to Watson.

With that in mind, here is everything you need to know about the major tax changes for 2020. And if you need help navigating the process and filing electronically, make sure you check out our picks for the best tax software.

Read more: How to estimate your tax refund: Tips, calculators and more

First, some good news. If you received a stimulus check from the March CARES Act or the December stimulus bill, that does not count as taxable income, and will not impact your return. Nor will those payments count as income for determining whether you're eligible for federal government assistance or benefit programs. (Learn more.)

If you were eligible to collect all or some of the first stimulus check of up to $1,200 per person or the second stimulus check of up to $600 per person, but it never arrived (or didn't accurately reflect your child dependents), you can claim your missing money on your 2020 tax return as a Recovery Rebate Credit. This credit will either increase the size of your total tax refund or lower the amount of taxes you owe.

You'll file for the Recovery Rebate Credit on the 2020 Form 1040 or Form 1040-SR to claim a catch-up stimulus payment. The IRS's Recovery Rebate Credit Worksheet can help you determine whether you're missing a payment and, if so, for how much. We've got full instructions on how to file for a Recovery Rebate Credit on your taxes here.

If you don't usually file taxes -- perhaps you're retired, on SSI or SSDI or don't meet the required income threshold -- but believe you're owed stimulus money, you'll need to file a 2020 return. Our step-by-step guide explains exactly how "nonfilers" can claim stimulus money. Note that nonfilers are often eligible for the IRS' Free File program, and shouldn't have to pay to file a federal return.

Missing stimulus money? You may be able to claim it on your tax return as a Recovery Rebate Credit.

For tax year 2020, the standard deduction is $12,400 for single filers (an increase of $200) and $24,800 for married couples filing jointly (an increase of $400). For heads of households, the standard deduction is $18,650 (an increase of $300). These increases are due to inflation adjustments. (Learn more.)

This year, you can deduct up to $300 in donations to qualifying charities -- even if you don't itemize. A temporary provision of the CARES Act designed to encourage giving, this deduction can't be carried forward into subsequent years. You can search for eligible organizations with the Tax Exempt Organization Search tool on IRS.gov. (Learn more.)

Employers can now contribute up to $5,250 per year toward an employee's student loan debt -- and it's tax-free for both employer and employee, as long as it's for payments made from March 27, 2002 through Dec. 31, 2020. (Learn more.)

Now playing: Watch this: Do this first if you've been laid off or furloughed

15:52

The CARES Act waived required minimum distributionsfor IRAs and retirement plans for 2020. Since those RMDs count as taxable income, if you didn't take the distribution, it's like getting a tax break. (Learn more.)

Designed to benefit people with lower incomes, this tax credit can reduce your taxable income and wages. Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, part of the December coronavirus relief package, you can use your 2019 or 2020 amount of earned income to calculate your tax credit for 2020 -- a potentially important provision for people who lost their jobs amid the pandemic. (The higher the income, the larger the tax credit.)

One thing to note: If you claim this credit, the IRS may request additional information, which could result in your refund being delayed.

Similar to the Earned Income Tax Credit, the Child Tax Credit is designed to benefit working families by allowing them to claim up to $2,000 per qualifying child via a refundable credit. But this year, you can use your 2019 earnings instead of 2020 to determine your eligibility for the Child Tax Credit, increasing the total amount of refundable credits you can receive for qualified children under the age of 17.

You can use this IRS tool to determine if your child or dependent will qualify for the credit. As with the Earned Income Tax Credit, claiming this credit may trigger a request for additional information, which could delay your refund.

Changes to the Child Tax Credit could get your family more money in your refund this year.

If you have a health flexible spending plan, good news: the limit for tax-free contributions has increased to $2,750 -- up $50 from last year. (Learn more.)

Some medical expenses are tax deductible -- and Congress passed a more generous allowance for what you can deduct as part of the December stimulus bill. Instead of capping expenses that exceed 10% of your adjusted gross income -- as was originally planned -- you can now deduct medical expenses that exceed 7.5% of your AGI. You're welcome! (Learn more.)

Nope --not unless you're self-employed. TheTax Cuts and Jobs Act suspended tax write-offs for home office deductions through 2025. Note that this could change next year if Congress opts to deliver more tax relief in future COVID-19 relief legislation.

You can find more details about all of these tax changes on the IRS website, and CNET's Personal Finance team has prepared a wealth of tax resources, including a series of articles covering the 2020 tax season from every angle.

Go here to see the original:

Tax season 2021: Stimulus payments, unemployment and every other major change - CNET

Related Posts
Tags: