When to file
When will I receive my refund?
Is unemployment money taxable?
Missing stimulus money
How much was stimulus money?
Is stimulus money taxable?
Changing dependent status
I was incarcerated in 2020
Tax refund withholdings
Viewing the Recovery Rebate
Home office deduction
Stock market trades
Ask your own question
Filing your taxes will be trickier this year because of the COVID-19 pandemic. Questions about unemployment, working from home, life changes, and stimulus payments may need to be accounted for on your 2020 tax return.
“This stuff is so complicated, getting even more complicated," said Arthur Bartlett, director of Charlotte Center for Legal Advocacy’s low-income tax clinic. “There's some COVID-19 specific things that people need to think about.”
Information from Bartlett, along with the IRS, is compiled here to answer your frequently asked questions about filing your 2020 tax returns amid the coronavirus pandemic.
Things to consider before filing your 2020 tax returns
Taxpayers need to think about the following heading into this tax season:
- The tax season opens on February 12, later than usual.
- If you can file electronically, that will help you get your refund quicker than filing a paper return.
- COVID caused a lot of unemployment in 2020. Unemployment insurance benefits are taxable. Look for statements from your state indicating how much you received in unemployment insurance benefits
- If you took distributions from retirement plans last year as a result of the COVID-19 pandemic, then you may choose to spread out that distribution over three years (2020, 2021, and 2022) as opposed to solo in 2020. If the pandemic was the cause of the distribution, then the money is not subject to the typical 10% penalty tax that usually occurs for distributions before age 55 and a half.
- If you lost your home in 2020, that amount should not be taxable. If the home was foreclosed, there are some adjusted gross income limits on the exclusion of that amount of income.
- And as always, be sure to use a reputable online tax tool or in-person tax preparer. You need to keep that information safe and secure.
Chapter two: When to file
When should I file my 2020 tax return?
The IRS delayed the beginning of tax season until February 12th, and Bartlett recommends filing online to get your refund fastest.
“Filing a paper return right now will take probably an inordinate amount of time to get processed because of the effect that COVID-19 has had on IRS staffing,” he said.
Wait only long enough to collect all your documentation (W-2s, 1099s, etc.) needed to file properly. If you file before your finalized documentation is available, you will have to file an amendment. Once your documentation is available, plan to file your taxes as soon as you can: the earlier you file, the earlier you should receive your refund.
Chapter three: When will I receive my refund?
When will I receive my refund?
The IRS anticipates that 90% of those who file electronically will get their refund in 21 days if they signed up for a direct deposit.
The IRS has a "Where's My Refund" page on its website that let tax filers know whether their return has been received, if their refund has been approved and if payment is on its way. Refund status can also be checked on the IRS2Go mobile app.
Chapter four: Is unemployment money taxable?
Do I owe taxes on the aid I received from unemployment insurance?
If you received unemployment in 2020, you may owe taxes on it when you file.
“I think it's gonna be a bit of a surprise to people when they realize that that money was taxable, subject to both federal and state tax," Bartlett said. "Some people may have made an election, just to have federal tax withheld, forgotten about the state. So it's going to be a bit of a surprise to a lot of people who collected benefits for some extended period of time.”
Workers are not required to have federal taxes withheld from their benefit payments when they are first issued. However if taxes were not withheld upon issuance, then taxes will be due on your return.
Additionally, unemployment benefits are always subject to federal taxes, but a handful of states do not tax it.
Chapter five: Missing stimulus money
I never received both or one of the stimulus checks. How do I get that money?
“There’s still an opportunity for people who missed out on one or both of the stimulus payments to get them by filing their 2020 tax returns…in the form of the recovery rebate credit," Bartlett explained.
It's important to note that people who weren’t initially eligible for one or both checks including: Dependents (like college students); mixed-status families; those who had a decrease in income or marriage status change;and those incarcerated in 2020; may also be eligible to claim the recovery rebate credit thanks to multiple lawsuits and rule changes over the last year.
“There's lots of information about how these complicated rules have changed," Bartlett said. "But it's really up to the taxpayer to figure this out and make sure that on that 2020 tax return, they're getting every bit of those recovery rebate credits that they're entitled to.”
Do a reconciliation for the amount of money you would have received; Try to get those credits in the form of the Recovery Rebate Credit.
Chapter six: How much was stimulus money?
How much was each stimulus check?
As a reminder, the first round of payments was worth up to $1,200 per eligible adult and $500 per dependent; the second was worth up to $600 for each eligible household member.
Those who accidentally received a larger economic impact payment than they were due will not be penalized.
Chapter seven: Is stimulus money taxable?
Do I have to pay money on the stimulus money I received?
The stimulus check money, also known as economic impact payments, will not be taxed federally. However, some states may be taxing the money.
Chapter eight: Changing dependent status
I was a dependent on someone else's 2019 tax return. Now I'm independent and filing my own taxes. Can I get money from the stimulus checks?
It's important for college students and other people who may have shown up as a dependent on somebody else's 2019 tax return now file themselves (either as a single party or, if you have also been married, jointly with your spouse). You could then submit a Recovery Rebate Credit to try and claim stimulus money.
Chapter nine: I was incarcerated in 2020
If I was incarnated during 2020, can I get money from the stimulus checks?
Do a reconciliation for the amount of money you would have received. You may be able to claim the money as a Recovery Rebate Credit. This is the result of a lawsuit filed in California after those incarnated did not receive the first stimulus check.
I did not receive the stimulus check because my 2019 tax return showed I was not eligible. However, my income levels dropped into 2020, and would now be eligible. Can I receive the stimulus money?
Yes. Be sure to include all the necessary information on your 2020 return to show your new income. Then file a reconciliation to try and claim the stimulus money as a Recovery Rebate Credit.
Chapter eleven: Tax refund withholdings
Can the IRS withhold some or all of a Recovery Rebate Credit - especially if a person has overdue debts or outstanding child support payments?
Bartlett added that while the IRS wasn’t allowed to withhold money from people’s stimulus checks for unpaid federal debts, a loophole does allow them to take money from your recovery rebate credit.
“There could be some federal student loan obligations or other federal liabilities that would cause that amount to be offset and used to pay off an existing federal debt," he explained. “Whereas if it had been paid out appropriately, you know, in a timely fashion as an advanced payment in the form of the either first or second stimulus payment, they would have received it. It's not fair. But it just is the way that the law is written.”
Outstanding child support, federal student loan obligations, or other federal liabilities could be withheld from a Recovery Rebate Credit.
Chapter twelve: Viewing the Recovery Rebate
How can I view my Recovery Rebate Credit?
Ultimately, the amount is rolled up into your potential refund total.
Chapter thirteen: Home office deduction
The pandemic forced me to work remotely from home. Can I help my home office as a deduction?
Yes, so long as it meets the standard requirements for claiming the Home Office Deduction. In any year, IRS rules state the space must be used regularly, exclusively for business purposes.
"If you think you can claim that home office deduction go ahead and do it, run it through the tax prep software you have or take that information to your to your tax preparer, and they'll let you know whether they can use it on the return and whether it will make a meaningful difference," Bartlett explained.
"Don't be afraid to claim a space a dedicated space in your home that you've used for an extended period of time during the past year...Absolutely try to claim that," he added.
Chapter fourteen: Charity deduction
What is the $300 charitable deduction?
Cash donations of up to $300 made before December 31, 2020 are now deductible when people file their taxes in 2021, according to the IRS.
Chapter fifteen: Stock market trades
I bought stocks in 2020. Do I owe taxes on them?
A number of people jumped into the stock market for the first time in 2020. But tax experts warn these investing newbies may not be fully aware of their tax obligation.
The most important thing to understand is you only pay taxes on investments when you “realize" their gains. So if you bought a stock in 2020 and its value went up — you won't pay taxes on those gains until you sell. And if it sank in value, the same rules of “realizing" apply. It hurts to have a loss but you can use those to offset your gains, up to a limit.
It's also important to understand that gains are taxed differently depending on how long you held on to the investment. If you sell a stock you held for less than a year, they are taxed at the higher short term capital gains rate, versus the lower long term capital gains rate for investments held for more than a year. And if you are a higher income household, you may also face a net investment income tax on capital gains and other investment income.
Chapter sixteen: Fraud resolultion
What do I do if I'm a victim of fraud?
The IRS says taxpayers who receive Forms 1099-G for unemployment benefits they did not receive to contact their state for a corrected form showing they did not receive these benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they actually received.
Chapter seventeen: Gig work
I worked for myself or as an independent contractor? Do I have to pay taxes on that income?
Yes, you will have to pay the self-employment tax rate, which for 2020 is 15.3% on the first $137,700 of net income to cover Social Security and Medicare tax. This is not the same as income tax.
One way to help offset this strain is to make sure to claim all your expenses, including supplies, advertising or marketing startup costs, or any equipment or dedicated home office.
If you were driving for a ride sharing service or delivery company, make sure to claim all the mileage you are eligible for. Consider smaller items too, like supplies for the car or car washing, which are eligible expenses.
Chapter eighteen: Ask your own question
I have another question? Can you answer it?
You can reach WCNC Charlotte by texting 704-329-3600 or emailing email@example.com.