In early 2020, Pacoima resident Carla Moran saw a glimmer of hope when she found work in a restaurant after a tough divorce. With that job, she was able to support her 12-year-old son, her 9-year-old daughter, and pay for a house she shares with her 74-year-old mother.
But the COVID-19 pandemic ruined all that.
The restaurant had to close, and Moran has not been able to find a new job. She relies on the $1,800 a month she receives in unemployment benefits from the state and federal government. That amount is barely enough to pay half the rent and provide for the most essential needs.
Filing her state and federal tax returns helped her catch up with utility and rent payments, Moran said.
“Since I haven’t worked all year, with all these new tax laws specific to what happened in 2020, I used whatever resources were available to get as much reimbursement (legally) as possible, so I can use some of that to pay the more than $4,000 I owe in rent, along with my electricity and gas payments,” the 38-year-old mother said.
Declare Unemployment Benefits
Usually, Americans must file taxes by April 15 to avoid late fees and penalties. But the federal Internal Revenue Service (IRS) extended this year’s on-time deadline for 2020 returns to May 17 (as did the state Franchise Tax Board).
“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig.
“Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”
Like Moran, millions of people have depended on unemployment benefits for months. That is income that must be reported, the IRS emphasized.
To help people amid the pandemic crisis, taxpayers who earned less than $150,000 may exclude up to $10,200 per person of unemployment compensation, and up to $20,400 for those married filing jointly. If you already filed your taxes and did not exclude this amount, the IRS says there is no reason to file an amended return; it will do the calculations and revise the refund.
The first refunds are expected to be sent out in May and will continue into the summer.
For those who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the up to $10,200 exclusion. The agency will then adjust returns for those married taxpayers filing jointly who are eligible for the up to $20,400 exclusion and others with more complex returns.
Also, money received from the stimulus checks is not considered income and you don’t have to declare it. But if you did not or have not received a stimulus payment and are eligible, you need to claim it so that it can be included in your refund.
If you overpaid your taxes, your stimulus payment will be added to your refund. And if you owe money, your stimulus will be used toward what you owe.
The American Institute for CPAs says that for this year, early retirement account withdrawals will not be subject to the usual 10% penalty.
Other key federal tax filing information for this year includes:
Charitable deductions. The tax service agency Jackson Hewitt notes that this year, under the CARES Act (the first stimulus package), taxpayers can take an above-the-line standard deduction (up to $300) in charitable donations made to IRS-approved organizations in 2020 even if they’re not itemized. But taxpayers can also take itemized deductions to charitable contributions up to 100% of their adjusted gross income. For example, someone who makes $50,000 can donate that same amount and claim it in full.
PPE is tax deductible. Another change brought about by the pandemic is that all the money spent on personal protective equipment — including face masks, hand sanitizer and sanitizing wipes — are deductible medical expenses. You can also deduct the cost of diagnostic services, such as a COVID-19 test. Teachers can deduct up to $250 for PPE items used in a school setting.
A break on repaying extra Obamacare tax credits. The IRS is suspending a requirement for taxpayers who received too much on their advance payments for the Premium Tax Credit in 2020.
The agency announced that taxpayers who received excess advanced payments on the tax credit for health care under the Affordable Care Act aren’t required to report it. Normally, taxpayers are required to return any extra subsidies they received during the year to the IRS when they file their taxes.
If you do owe taxes and are having trouble paying the full amount, consider filing for an extension or setting up a payment plan (although payment plans can still involve fees, penalties and interest). But you still must file your returns on time. Late filing fees can be higher than late payment penalties.