The past year has displayed unbridled transformation to our lives. COVID-19 required extensive financial intervention from our government, which now complicates our 2020 tax filings. Learn about some of these changes below, or reach out to a tax professional for assistance.
Unemployment
Not only were unemployment benefits extended through September 6th (decreased to $300/week from $400/week) but a tax-free aspect was added. Households with income less than $150,000 ($75,000 for single filers, $112,500 for head of household) can exclude from income up to $10,200 of unemployment benefits. This is retroactive to 2020 benefits reported on the 2020 tax return. We are still waiting for guidance on how this will affect taxpayers who have already filed tax returns for 2020 and whether these benefits will also be tax-free on the state level.
Health Insurance Subsidy Repayment
Did you underestimate your 2020 income and receive too much subsidy towards your health insurance? Don’t worry! You are not required to pay back the excess on your 2020 tax return. The act also expands the subsidy to more taxpayers, including those with higher incomes and those who collect unemployment.
Immediate Relief
Direct Payments
$1,400 payments have begun being processed for individuals falling within income guidelines. To track your payment or to see if you qualify, go to this link: https://www.irs.gov/coronavirus/get-my-payment
Child Tax Credit
Currently $2,000 for dependent children under the age of 17, this credit will increase to $3,000 for dependent children ages 6-17 and $3,600 for children under the age of 6. For taxpayers with income exceeding the thresholds mentioned above, the credit will phase out. The credit is also made fully refundable, meaning, if your tax is less than the credit, the remainder will be issued as a refund.
Additionally, 50% of the benefit will be prepaid over 6 months beginning in July 2021. It will be important to keep good records of the amount received to prepare an accurate 2021 tax return. This change is effective for 2021 only.
2021 Tax Relief
Child Care (Daycare) Credit
For 2021 only, this credit is increased to 50% of eligible expenses up to $4,000 for one child or up to $8,000 for two or more children. This credit is also made refundable but phases out with incomes exceeding certain amounts.
Employer-provided dependent care benefits are also given a one-year bump to $10,500 per household.
Earned Income Credit
The act eliminates the maximum age of 65 and lowers the minimum age to 19, with exceptions that include full-time students. Allowable investment income is increased from $2,200 to $10,000.
As we find ourselves in the wake of 2020, the Pandemic Year leaves behind numerous complications in nearly every facet of our lives. Tax season is regularly a confusing time for many taxpayers, however, Angolano & Company is here to help you navigate these times.