It is Tax Season
IRS News & Updates
The deadline to file federal & state taxes is May 17th. My team and I pulled together information from the IRS and other state and federal agencies. It will help you find out more about changes to the federal tax law, stimulus checks, and more!
If You Have Not Received a Stimulus Check (aka an Economic Impact Payment)
The IRS is not sending out any more first or second stimulus checks. The IRS refers to these as “Economic Impact Payments.” If you did not receive EIP1 and/or EIP2, or think you received the wrong amount, the first step you should take is checking your eligibility.
If you determine that you are eligible for EIP1/EIP2, your next step should be to set up an account with the IRS. The reason for creating an account is that the IRS.gov Get My Payment tool was previously useful for showing the scheduling of payments for EIP1 and EIP2. However, with the passage of EIP3, the Get My Payment tool updated to only show information about EIP3. By creating an account with the IRS, you will be able to see if your stimulus check history, and use that to file a Rebate Recovery Credit (see below).
Claiming the Recovery Rebate Credit
If your online account shows you were not sent EIP1 or EIP2 and you believe you were eligible then you must file for the Recovery Rebate Credit (RRC). This is a tax credit on your 2020 taxes on the 1040 form. The timeline of receiving the 2020 return is an average of 21 days if electronically filed and 6–8 weeks if submitted on paper through the mail. The deadline for filing 2020 taxes has been extended to May 17, 2021.
For more information about the RRC, see Recovery Rebate Credit Frequently Asked Questions and this YouTube video.
If You Have Not Received EIP3
In the third round of stimulus checks, the IRS has distributed more than 156 million payments with a total value of approximately $372 billion. While that is a great achievement, there are still millions of stimulus checks that must be sent out and the distribution period is far from over. If you have not received EIP3, you should first check your eligibility.
EIP3 differs from EIP1 and EIP2 in a few ways. For example, Congress expanded eligibility for adult dependents who were previously left out.
If you determine that you are indeed eligible for EIP3, you should use the Get My Payment tool on the IRS website to see if your payment is scheduled to be sent out. Your status will not update until your payment is scheduled to go out.
If you had to file for the Recovery Rebate Credit, once that credit is processed and received by you, the IRS will put you in a queue to receive EIP3.
For federal beneficiaries, the IRS had to go through a multi-step process to review, validate, and test tens of millions of records to ensure eligibility and proper calculation of EIPs after receiving data from the Social Security Administration on Thursday, March 25. The IRS began processing payments April 5th. Because most of these payments will be disbursed electronically — through direct deposits and payments to existing Direct Express cards — they will start being received on the official payment date of April 7.
Tax Returns
Filing Your 2020 Tax Return
As stated above, the tax filing deadline for 2020 has been extended to May 17, 2021
You may be able to e-file for 2020 even if you did not file for 2019 or are waiting on your 2019 returns to be processed. If you used the Non-Filers: Enter Payment Info Here tool in 2020 to register for an Economic Impact Payment, you may enter $1 as your prior year adjusted gross income. If your 2019 tax return has not been processed, you may enter $0 instead.
You can track your refund using the Where’s My Refund? tool. It will tell you when your return is in received status and if your refund is in approved or sent status.
Tax Preparation Services and Tools
A useful service from the IRS is the IRS Free File program, which offers 70% of all taxpayers the choice of nine brand-name tax preparation software packages to use at no cost. Those who earned less than $72,000 in 2020 can choose which package is best for them. Some even offer free state tax return preparation. Those who earned more than $72,000 in 2020 and are comfortable preparing their own taxes can use Free File Fillable Forms. Information on this program can be found in English, Español, 中文 (简体), 中文 (繁體), 한국어, Русский, Tiếng Việt, and Kreyòl ayisyen.
Those who are looking for free local tax preparation should consider contacting VITA/TCE sites. As a result of the pandemic, some sites are not operating or not open at full capacity. Interested individuals should check the VITA/TCE locator tool to search for nearby available sites.
The Volunteer Income Tax Assistance (VITA) program has operated for over 50 years, offering free tax help to: People who generally make $57,000 or less, Persons with disabilities; and Limited English-speaking taxpayers who need assistance in preparing their tax return
The Tax Counseling for the Elderly (TCE) program offers free tax help, particularly for those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.
For military service members, families & some veterans, Military OneSource’s tax service MilTax, provides online software for eligible individuals to electronically file a federal return and up to three state returns for free.
2019 Delayed Tax Returns
A number of constituents have noted delays getting their 2019 tax returns processed. Unfortunately, such delays are symptomatic of the effect Covid has had on the IRS. With many aspects of IRS operations shut down or slowed due to Covid, there is a backlog of 2019 returns that the IRS has not processed and that do not appear on IRS systems. We know that such delays have disproportionately affected taxpayers who filed by paper during the last tax season. This is because paper returns must be manually input into the IRS database before they can be processed. As of April 2, there are 5.5 million individual returns that have not been processed, 7.6 business returns and 2.7 returns whose status is unspecified. While at present no concrete timeline for addressing the backlog has been given, the IRS believes that they may finish processing 2019 returns in July 2021.
Changes to our Tax Laws
Unemployment Compensation
The American Rescue Plan signed in March of 2021 includes a waiver of up to $10,200 on unemployment compensation for single taxpayers who earned less than $150,000 in adjusted gross income, and $20,400 for married taxpayers filing jointly who each made less than $150,000.
Already filed and included 2020 unemployment benefits:
Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund. The first refunds are expected to be made in May and will continue into the summer.
For those taxpayers who already have filed and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed. There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.
However, you may want to review their state tax returns.
Haven’t filed yet and received unemployment benefits in 2020:
The IRS has worked with the tax return preparation software industry to reflect the American Rescue Plan updates with regard to unemployment benefits so people who choose to file electronically simply need to respond to the related questions when electronically preparing their tax returns.
See New Exclusion of up to $10,200 of Unemployment Compensation and About Form 1040, U.S. Individual Income Tax Return for information and examples of how to calculate the amount of excludable unemployment.
Taxes on Small Business
Small businesses that received Paycheck Protection Program loans do not need to pay taxes on the financing they received if they have successfully applied for PPP forgiveness. In other words, a forgiven PPP loan can be treated as tax-exempt income.
However, Massachusetts does not exempt earnings from PPP funding from individual income taxation.
As of December 2020, businesses can obtain both a PPP loan and the Employee Retention Tax Credit for both 2020 and 2021. Additionally, the ERTC has been drastically expanded to allow for a maximum of $14,000 per employee through June 30, 2021
Employers were allowed to defer payroll taxes through December 31, 2020. 50% of the accumulated deferred taxes from 2020 must be paid by the end of 2021.
Payroll, rent, and utilities can be written off as business expenses if PPP loan funding was used to pay for them.
Businesses cannot use PPP funding to pay business taxes.
Tax Credits
The American Rescue Plan also created new tax credits and expanded previous options. Due to some changes, more constituents are eligible to claim the EITC and/or ACTC. For details about EITC, see IRS Publication 596, this EITC YouTube video and for ACTC see the Instructions for Schedule 8812, Additional Child Tax Credit.
To find out if you’re eligible for the EITC and get an estimate of the amount of their credit taxpayers can use the IRS’s Earned Income Tax Credit Assistant. More information is at Earned Income Tax Credit (EITC). The 2020 income limit for EITC eligibility is $56,844.
Helpful Tools and Next Steps
Here are some tools that you can use to get additional help.
In the event you are facing financial hardship, our office can assist by connecting you with other programs and services that may alleviate some of that stress. Call my office at 978–531–1669.
