This tax season has been incredibly busy! Tax season didn't start until mid-February, then only one month later - in the midst of tax season! - did some major adjustments get passed! Let's get a handle on what's going on with the major tax changes.
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In addition to the changes detailed in this post, Tax Season 2021 has been extended. The national deadline for filing your federal tax return is May 17, 2021; check your state tax website for information on your state tax deadline.
Oklahoma, Louisiana, and Texas have all been granted extra time, and their federal taxes are due on June 15th, 2021. Oklahoma and Louisiana have also extended their state tax filing and payment deadlines to the same date.
If you have any questions about how these updates might affect your taxes, schedule a consultation appointment and we'll be happy to help you better understand your tax situation and your options for managing it.
401K DISTRIBUTIONS
If you took out a distribution from a 401K to cover your living expenses due to COVID illness, reduced work hours related to COVID, or job loss related to COVID, let us know! With this information, we can save you that 10% additional tax for early distribution, and we can help you manage the tax owed on it:
On this tax return, we can spread the tax burden of that distribution over three years. If you took a distribution of $60,000, that would be a big jump for your income, and it will increase your taxes owed. However, by spreading out that $60k over three years, we will add only $20k to your annual income. It's still more income to report on your tax return over the next three years, but it is an alternative to claiming all of it in one year.
STIMULUS PAYMENTS
Your stimulus is not taxable. The IRS is using your 2020 tax return to confirm that you have received the appropriate amount of stimulus funds, and if you were underpaid, it will be made up on your 2020 tax return. The IRS has said that they will not try to collect any overpaid stimulus amounts.
Most taxpayers have already received the first, second, and third stimulus payments. If you did not received the first or second stimulus and are eligible for it, we'll need to file your 2020 tax return. If you do not remember how much or if you received the first two stimulus payments, you can search your bank records, call your bank, or create an IRS account to view your stimulus payments: https://www.irs.gov/payments/view-your-tax-account
If you underreported your stimulus amount received, you can expect to receive a letter from the IRS explaining that they reduced your refund by the over-estimated amount reported.
For example: If you received $600 from the second stimulus, but forgot that you received it (the holidays can be crazy!), you would have told us that you didn't get the second stimulus. On your tax return, we would have reported your second stimulus as missing and you would be expecting it in the form of a refund. The IRS would send a letter to you, telling you that your refund amount was reduced due to the misreported stimulus.
**The IRS is still distributing the third round of stimulus payments, and will continue to do so for several weeks. Starting March 15, 2021, you can track your third stimulus payment on the IRS tool: https://www.irs.gov/coronavirus/get-my-payment . This tool cannot track your first or second stimulus payments; you will have to create an account on IRS.gov to look those up.
For taxpayers who do not receive the third stimulus, or those who do not receive the total amount owed to them, we will have to wait for guidance from the IRS. We predict that the third stimulus will be reported on your 2021 tax return, similar to reporting the first and second on your 2020 tax return, and you will be able to receive your missing stimulus as a tax refund.
UNEMPLOYMENT UPDATE
If you claimed unemployment benefits on your 2020 tax return and it was filed before March 19, 2021, the IRS will re-calculate your return in consideration of the recent legislation that included a tax exclusion for those taxpayers whose adjusted gross income was less than $150,000.
The IRS has stated that they will begin processing refunds in May, 2021. If you have outstanding taxes owed, this refund will be applied to that balance. Otherwise, you can expect to receive this refund via direct deposit if you provided us with that information; otherwise, you will receive a check or debit card. Even if your direct deposit information was included with your return, the IRS may still send a check or debit card, so keep an eye on your mail over the next few months.
The tax exclusion may result in an improved tax position for some clients. We will be reviewing our client list this summer and contacting those who may benefit from filing an amended return.
HEALTHCARE MARKETPLACE
If you received your 2020 healthcare from the Healthcare Marketplace, you will have received a form called 1095-A. This is required to report on your tax return every year. A relatively new development, part of the The American Rescue Plan Act of 2021, might result in a refund from the IRS if you get your insurance from the Healthcare Marketplace: If you have to pay back the premium tax credit... now you don't! Payment of the credit is suspended for 2020 tax returns.
If you already paid your tax credit back in the form of your annual tax owed, not to worry. The IRS is going through all of the affected tax returns and will reimburse any overpaid credit. For more details, visit the IRS Fact Sheet.
If you have any questions about how these updates might affect your taxes, schedule a consultation appointment and we'll be happy to help you better understand your tax situation and your options for managing it.
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