The May 17th tax deadline is quickly approaching.
In a normal year, you may already have a lot of last-minute tax tips to remember if you waited to do your taxes. With so much happening in 2020 and the multiple stimulus relief packages that passed, you may be wondering how you are going to get everything together to file on time.
We all may know about helpful last minute tax tips like, don’t wait until the last minute, e-file with direct deposit, or gather your documents in one place. But what about all of the stimulus relief that passed? What should you keep in mind when thinking about the provisions that passed related to stimulus relief?
Don’t worry because TurboTax can easily guide you through your taxes and has you covered on the usual and not so usual tax relief savings. TurboTax has proactive guidance related to the events that happened in 2020 and the stimulus relief that passed.
Although TurboTax guides you, we want to share a breakdown of some of the stimulus relief related tax breaks that will help your overall tax picture and your tax refund.
Stimulus Relief Related Tax Breaks
Unemployment Income Tax Relief
As a result of the events that took place in 2020, over 40 million people were unemployed and millions received unemployment benefits as a result of expanded unemployment under the various stimulus relief packages. What many didn’t know when they received unemployment income is that unemployment income is usually taxable, but under the American Rescue Plan Act of 2021 that passed in March of this year, the first $10,200 of unemployment income may be tax-free ($20,400 married filing jointly) if you make under $150,000.
Special Lookback Rule to Help You Get Bigger Tax Credits
The Coronavirus Response and Relief Supplemental Appropriations Act passed in December 2020 contains an important provision which has the potential to help workers who experienced lower income in 2020, or received unemployment income in lieu of their regular wages, get bigger tax credits and a bigger tax refund.
The special lookback rule allows you to use your earned income from 2019 to determine your Earned Income Tax Credit and the refundable portion of the Child Tax Credit in 2020 if it will give you a bigger credit, since lower 2020 income could reduce the amount of the credits you are eligible for.
Tax-Free Stimulus Payments and the Recovery Rebate Credit
Many are still wondering if stimulus payments are taxable. One thing to remember is that stimulus payments are not taxable, and if you received too much you do not have to pay it back under the various stimulus relief packages. But what happens if you didn’t get your first or second stimulus or you received a partial payment? Or what if you had a baby in 2020? How do you get stimulus for your baby?
If you didn’t receive your first or second stimulus or received a partial payment, you can claim what you’re owed in the form of a recovery rebate credit when you file your taxes. Make sure you have IRS Form 1444 and Form 1444B that shows how much stimulus the IRS issued to you when you sit down to do your taxes. If you had a baby in 2020, you can also claim a recovery rebate credit for your baby since the IRS probably did not know you had a baby when they issued your stimulus check.
Retirement Relief
Under the CARES Act if you made a Coronavirus related retirement distribution from your IRA or 401K, keep in mind that the 10 percent early withdrawal penalty may be waived on up to $100K of retirement funds withdrawn if you, your spouse, or dependent were diagnosed with Coronavirus, you experienced adverse financial consequences as a result of being quarantined, furloughed, or laid off, you had hours reduced due to Coronavirus, or you were unable to work due to your child’s daycare closing or reducing hours. In addition, your distributions would be included in your taxable income over three years instead of all included in one year.
You also have until the new May 17 tax deadline to make a 2020 contribution to your IRA and make an impact on your 2020 taxes since the contribution deadline was also extended from April 15 to May 17.
Charitable Deductions if You Claim the Standard Deduction
Under the CARES Act, the close to 90% of taxpayers that claim the standard deduction can now also take a deduction for cash donations to a 501(c)(3) charitable organization up to $300 even if you don’t itemize your deductions. If you donated cash and you claim the standard deduction, make sure you have your acknowledgements in front of you when you file. You can also use the TurboTax Itsdeductible tool which helps you track your donations year-round, and then the information can transfer to your TurboTax tax return.
Suspension of Pay Back of the Advanced Premium Tax Credit
The American Rescue Plan passed in March of this year contains a provision which suspends the requirement to pay back the Advanced Premium Tax Credit if you were paid excess advance payment of the Premium Tax Credit (excess APTC) for tax year 2020. You can keep this in mind when you sit down to do your taxes if you thought you were going to have to pay back any excess APTC.
Self-Employed Relief
Qualified Sick and Family Leave Credits: Under the Families First Coronavirus Response Act (FFCRA), relief was passed for self-employed individuals and small businesses in the form of refundable sick leave and family leave tax credits for self-employed people impacted by coronavirus. If you were self-employed and could not work due to coronavirus, don’t forget that you may be able to claim these credits that can be worth thousands of dollars.
>Tax Relief for Paycheck Protection Program (PPP) Loans: The Paycheck Protection Program, created in March 2020 as part of stimulus relief, provided loans to self-employed and small businesses to help pay for eligible costs like rent, utilities and payroll. Many people have questions like, "Are my loan proceeds taxable?" and "If my loan is forgiven, is that taxable?"
If you are self-employed or a small business owner and you received a PPP loan, you can breathe a sigh of relief in this time of need. Since the PPP is a loan, it is not taxable since the intention is to pay it back. If you can’t pay back the PPP loan and the loan is forgiven, you will not have to include the forgiven debt in your taxable income unlike other forgiven debt.
Hopefully these highlights and tax tips will put your mind at ease as you sit down to get your taxes done since they may increase your tax refund and improve your tax picture.
TurboTax Has You Covered
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions, you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years experience. TurboTax Live tax experts are available in English and Spanish, year-round, and can even give a final review of your taxes.
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