For Tax Season 2021: Here is what you need to know
If you’re like us, you probably never want to think about 2020 again. But there is one lingering ghost from last year that you need to get rid of before you can truly move on for good—and that’s your 2020 taxes.
Thanks to the coronavirus (among other things), a lot has changed for the 2021 tax season. That’s why you need to start thinking about your tax situation now while you still have time on your side. We want you to be prepared to tackle your taxes before they tackle you. And to do that, we’re going to dig into what’s new for this tax season and what’s staying the same.
First, here are the main things you need to know right off the bat for the 2021 tax season:
But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year.
Income Brackets and Rates for 2021 Tax Season
Here’s a refresher on how income brackets and tax rates work: Your tax rate (the percentages of your income that you pay in taxes) is based on what tax bracket (income range) you’re in.
For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.)
For the 2020 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2019 to account for inflation.
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When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.
For tax year 2020, the standard deduction went up slightly to adjust for inflation.
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Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize. Talk to a tax pro to figure out what’s best for you.
The closest things to “magic words” when it comes to taxes are deductions and credits. Both help you keep more money in your pocket instead of Uncle Sam’s, but they do so in slightly different ways!
Tax deductions help lower how much of your income is subject to federal income taxes. Some deductions are only available if you choose to itemize your deductions, while others are still available even if you decide to take the standard deduction.
Meanwhile, tax credits lower your actual tax bill dollar for dollar, and there are two types of credits: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! But if it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund. That’s still great!
Here are some deductions and credits you might be able to claim on your 2020 tax return:
If you like to give like no one else, we have some great news! In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to 100% of their adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize their deductions.
What if you’re taking the standard deduction? Well, the CARES Act added a new “above-the-line” deduction that will help you write off up to $300 of charitable contributions you made in cash.
If you spent a lot of time in the hospital or found yourself with some hefty medical bills last year, you might be able to find at least some tax relief.
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2020. But you have to itemize your deductions in order to write off those expenses on your tax return.
If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.
But if you’re one of the millions of workers who were sent home to work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed individuals only. Sorry!
The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to $56,844 during the 2020 tax year might be eligible).7 Depending on your income, your filing status and how many children you have, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. But here’s a crazy stat: About one out of five taxpayers who are eligible either don’t claim the benefit on their taxes or don’t file a tax return at all. Don’t let that be you!
Got kids? Families can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). And since this is a refundable credit, your family can receive up to $1,400 per child as a refund.
And there are plenty of other deductions and credits that might be up for grabs depending on your situation! If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving any deductions or credits on the table.
Oh, so you thought you were done with the coronavirus now that it’s 2021? Unfortunately, the coronavirus (and the government’s response to it) has created a ripple effect that will be felt when you sit down to file your taxes for last year. Here are some things to keep in mind:
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut most of the country down.
The good news is your stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.
The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”
But heads up, small business owners: The IRS says that any expenses you paid with money from those PPP loans cannot be deducted from your taxable income. Plus, you’ll have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed. But since the SBA is processing the applications for $525 billion in loans given to 5.2 million borrowers at the speed of a sloth wearing ankle weights, we don’t recommend holding your breath.
Many Americans found themselves out of work (at least temporarily) after the pandemic shut down a large part of the economy and turned to unemployment insurance for help. Those who received unemployment benefits will need to pay income taxes on that money.
If you chose not to have taxes withheld from your benefits when you signed up, then you’ll either have to pay quarterly estimated taxes or set aside enough money from your unemployment benefits to pay your taxes come Tax Day.
Any money you take out of a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses in order to be tax-free. Makes sense. But a lot of schools went remote or cancelled classes this year—which means your college might have refunded some or all of your 529 or ESA money. If that’s the case, you have 60 days to put the money back in the account or use it to cover other educational expenses. If you didn’t, you might have to pay income taxes and a withdrawal penalty.
There are also a couple of new ways you can use 529 plans in 2020 without having to pay any taxes. First, you can now use 529 plans to pay for the costs of certain apprenticeship programs—including fees, books and supplies. And second, you can also use money from a 529 plan to pay off up to $10,000 in student loan debt (that’s $10,000 total—not annually) without having to pay any penalties or taxes.
There were a lot of changes to retirement plans in 2020—and some of those changes could impact your tax bill this year. Let’s tackle each of those major changes:
One last thing: If you did take some money out of a 401(k) or traditional IRA and you’re facing a huge tax bill, don’t panic! You have three years to put those funds back and get a refund on any taxes you paid on that money. And more importantly, it’ll help you get your retirement savings back on track. It’s probably a good idea to reach out to an investment professional who can walk you through the process.
First, don’t panic! Here are some answers to some of the biggest questions about how the coronavirus (and everything that followed because of it) might affect your 2020 tax returns, plus some action steps you can take to prepare yourself and avoid any nasty “Tax Day” surprises.
1. Will the stimulus check money I received be taxed?
Nope, the stimulus money that you received from Uncle Sam will not count as taxable income. So that’s one less thing you have to worry about when Tax Day rolls around!
Let’s back up a little bit. In March, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in an effort to try and provide help to everyday Americans during the height of the coronavirus pandemic.
Individuals who filed taxes in 2018 or 2019 received $1,200 for each adult and $500 for each child. So, a household with two adults and two children, for example, most likely received $3,400 in stimulus money.
So, why isn’t that money being counted as taxable income? Because it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.
What is a Tax Credit?
In the tax world, finding out if you qualify for a tax credit can feel a lot like finding that unexpected $20 bill—only much more valuable! Tax credits can magically shave hundreds, or even thousands, of dollars off your tax bill. Now that is worth busting a move or two!
Let’s take a closer look at what a tax credit is, how they work, and which ones you might be able to claim on your tax return this spring.
A tax credit reduces how much you pay in taxes by letting you subtract a certain amount of money directly from your tax bill. A $500 tax credit, for example, will save you $500 in taxes owed. The more tax credits you claim, the more money you get to keep in your pocket!
What’s the point of having tax credits? The government sometimes uses taxes to try to discourage folks from certain behaviors or activities (think taxes on cigarettes). But Uncle Sam will also dangle a tax credit like a carrot on a string to encourage certain behaviors and activities that might be beneficial for the economy, the environment or some other cause.
Tax credits are also a way to provide a tax break for low- and middle-income taxpayers who need it most.
While tax deductions and tax credits both lower how much you’ll pay in taxes, they do so in different ways. Deductions lower your taxable income while tax credits lower how much you actually owe in taxes dollar for dollar.
How does all that work? Well, if you’re in the 22% tax bracket, a $1,000 tax deduction will cut $220 off your tax bill. That’s pretty good! But a $1,000 tax credit will actually save you $1,000 in taxes for the year. So, between deductions and credits, it’s pretty clear to see that tax credits are the more valuable of the two!
There are two words every taxpayer needs to get familiar with as Tax Day draws near. These two words will help you shave hundreds, maybe even thousands, of dollars off your tax bill.
Are you ready? Here they are: tax deductions.
You’ve probably heard phrases like “you can write that off your taxes” or “those are deductible expenses” and wondered if you really understand how this whole tax deduction thing works. You’re not the only one!
A lot of folks don’t know which tax deductions are available or how to claim them on their tax returns. But you don’t want to be that guy or gal, because it could mean you’re leaving a good chunk of money in the hands of the IRS without even knowing it!
Simply put, tax deductions reduce how much you pay in taxes by lowering your taxable income. When you hear the word deduction, just think subtraction. You’re simply subtracting how much of your income is taxed and reducing how much you owe to Uncle Sam in the process. Cha-ching!
For example, charitable donations are one of the most common tax deductions available. That means you could “write off” the money you gave to charity last year and reduce your taxable income by the amount you gave.
So, if your income is $50,000 and you gave a $1,000 gift to your favorite charity last year, you could claim that gift as a tax deduction and you’ll only be taxed on $49,000 instead of $50,000.
But that’s only scratching the surface! From retirement plan contributions to home mortgage interest, there are dozens of tax deductions out there you might be able to take advantage of.
While tax deductions lower your taxable income, tax credits cut your taxes dollar for dollar. So, a $1,000 tax credit cuts your final tax bill by exactly $1,000. A tax deduction isn’t as simple. If you get a $1,000 tax deduction and you’re in the 22% tax bracket, that deduction reduces your taxable income and saves you $220 when it’s all said and done.
Tax credits fall into two main categories: refundable and nonrefundable. If you have a refundable tax credit of $500 but only owe $200 in taxes, the IRS will send you a check for $300. On the other hand, if you have a nonrefundable tax credit worth $750 but you only owe $250 in taxes, you unfortunately won’t get a check for $500 (the balance of the credit you didn’t use).
When you’re filling out your tax return, there are two ways to claim tax deductions: Take the standard deduction or itemize your deductions. You have to pick one!
The standard deduction is the easy option—it’s like an automatic tax freebie. If you choose to take the standard deduction, your taxable income is automatically reduced by a set amount based on how you file (like single, married, or married filing jointly). That lowers the amount of taxes you have to pay. No need to dig through receipts or bank statements!
Itemizing your deductions takes more work—you’ll need to list all the deductions you want to claim one by one. And you’ll have to fill out a Schedule A form with your tax return and go through your records to back up your claims.
Yes, itemizing is a bit of a hassle, but it’s worth the effort if you can claim enough deductions to lower your taxable income more than the standard deduction.
How do you know which option is best for you? There are a few things you need to know before you make your decision this year.
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Important to note: If you or your spouse are over 65 or legally blind, you might be able to get a larger standard deduction. But if you’re married filing separately, you’re a nonresident alien or a dual-status alien, or someone else claims you as a dependent on their return, your standard deduction may be lower. Be sure and check with a tax pro if you have any questions.
First, let’s take a look at what you can write off from your taxes. Here are some of the most common deductions that many taxpayers can take advantage of:
The more you give, the more you can deduct from your taxes! Any amount you gave to your church, your alma mater, or your favorite charities can all be written off your taxes. Most years, you can deduct any amount of charitable giving up to 60% of your taxable income. But thanks to the CARES Act, you can deduct all of your charitable contributions in 2020. Nice!
But even if you don’t itemize your deductions, the CARES Act also allows you to take an “above-the-line” deduction (which lowers how much of your income is taxable) of up to $300 for charitable giving.
Do you have health insurance but still find yourself paying out of pocket for medical or dental expenses? The IRS lets you deduct medical expenses that are more than 7.5% of your taxable income for things like appointments with medical professionals or dentists, prescription drugs, contacts or eyeglasses, and health insurance premiums (paid for with after-tax dollars and not reimbursed by your employer), just to name a few!
To break it down: If your adjusted gross income is $50,000, then 7.5% of that is $3,750. So, if you have $5,000 of medical expenses that weren’t covered by your health insurance, subtract the $3,750 from that and you get $1,250 as a tax deduction.
A lot of folks forget this one! The IRS lets you choose to deduct either your state and local sales tax or income tax, along with some foreign taxes. If you live in a state with no income tax or you made some big purchases like a new car or a furniture set for the living room, the sales tax deduction is the way to go. And if you’re a homeowner, you can also deduct property taxes from your tax bill.
The new tax law caps the total amount you can deduct in income, sales and property taxes to $10,000.
If you’ve been paying so much in student loans that Sallie Mae seems like that smelly college roommate who just wouldn’t go away, take some comfort in the fact that you can claim a student loan interest deduction of up to $2,500.
Ah, the joys of homeownership! There’s the big backyard, the white picket fence, your mortgage payments . . . okay, maybe not that last part. But at least you can deduct that interest you paid on up to $750,000 of mortgage debt.
If you happen to have a traditional IRA, those contributions are most likely tax-deductible. But your deduction might be limited based on your income and whether or not you (or your spouse if you’re married) have a retirement plan through your workplace.
But here’s the catch: You’ll have to pay taxes on the money you take out of your traditional IRA in retirement. Yuck. That’s why we recommend investing with a Roth IRA instead. Of course, you won’t be able to deduct Roth contributions off your taxes now. But who cares? You’ll be too busy enjoying tax-free growth and withdrawals in retirement later. Future you will thank you!
Contributions to your traditional pre-tax 401(k) also lower the amount of your taxable income, potentially moving you into a lower tax bracket and saving you money on taxes this year. But you’ll also have to pay taxes when you take that money out during retirement. So, keep that in mind
If you’ve turned part of your home into your own workspace used only for business, you can write off work-related expenses like rent, utilities and maintenance costs.
Here’s the deal: With the increase in the standard deduction, taking that automatic deduction will make sense for more taxpayers than before. But it’s still important to add up your itemized deductions before you make that decision.
Take Linda and Eric, for example. They’re married and filing jointly, so they automatically qualify for that $24,800 standard deduction—and they’re excited about that huge amount!
But just to be sure, they go through their records to find all the tax deductions they can claim if they choose to itemize. Would they save money that way?
After adding up their itemized deductions, they see they can knock more than $28,000 off their taxable income, potentially saving them hundreds of dollars on their taxes.
Do you think Linda and Eric regret going back through all their receipts, files and bank statements? Not a chance!
Still, for many other taxpayers, the new standard deduction is far and away the better option.
Meet Shawn. He’s a single guy just starting out in his career. He’s putting in crazy hours at his accounting job and renting a small apartment while he tries to work through his debt snowball. Since he doesn’t have that many expenses to deduct, the standard deduction offers a much larger tax break than itemizing would. That’s a no-brainer!
Itemize or Take Standard Deduction?
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When it comes to taxes, everyone’s situation is different. There is no one-size-fits-all solution! If you’re a homeowner or business owner, you made a lot of charitable contributions, or you paid out of pocket for hefty medical expenses, then itemizing might be the best move for you.
The bottom line? You want to be sure you’re getting the most out of all these tax deductions. Just one missed deduction could cost you far more than the fee of a professional.
That’s why when you’re in doubt, you should turn to a tax advisor. With years of experience behind them, their wealth of knowledge can take the guesswork out of taxes—protecting you and your wallet.
The sooner you connect with a pro, the sooner you can check taxes off your to-do list.
Another thing the CARES Act did is allow people to take a type of “hardship withdrawal” of up to $100,000 out of their retirement accounts until the end of 2020 without having to pay the usual 10% early withdrawal penalty.
But even without the early withdrawal penalty, you’ll still have to pay income taxes on any money you take out of your traditional 401(k)s and IRAs. If you’re not careful, you could bump yourself into a higher tax bracket and owe Uncle Sam even more in taxes for this year.
Look, if you’re currently staring at your 401(k) balance with hungry eyes, let us dump a bucket of ice-cold water on that idea: Don’t do it. We don’t want you to even think about taking money out of your retirement accounts. The only time it ever makes sense to tap into those accounts is to avoid bankruptcy and foreclosure. That’s it.
Even without the early withdrawal penalty, raiding your 401(k)s and IRAs is a bad idea for two reasons. First, you’re sabotaging your money’s ability to grow over the long term and basically stealing money from your future self. Not cool. And second, like we just talked about, you’ll have to pay taxes on the money you take out.
But to the point, what if you already took some money out of your 401(k)s and traditional IRAs? The good news is you can undo that mistake! The CARES Act allows you to return any funds within the next three years and file an amended return. That way, you can get a refund on the taxes you paid on that money and get your retirement savings back on track.
Yes, any unemployment benefits you received in 2020 will count as taxable income.
Millions of Americans lost their jobs or were furloughed in the midst of the lockdowns and economic shutdowns, leading to record numbers of people signing up for unemployment benefits.4 The CARES Act also allowed the freelancers, independent contractors and the self-employed to file for Pandemic Unemployment Assistance, a program designed to help folks not usually eligible for unemployment benefits.
There are two ways you can pay your taxes on those unemployment benefits, depending on what you chose when you filed. The first is to have 10% of each payment withheld to cover all or some of what you owe in federal income taxes (you can’t withhold more or less from unemployment benefits). That’s probably the easiest option! If you chose not to have taxes withheld from your benefits, then you’ll have to pay quarterly estimated taxes on that money.
Whether you were delivering groceries all over town or selling everything in your house that wasn’t nailed down to the floor, you might have taken on a side gig (or three) to replace lost income or pile up cash to ride out the pandemic. Hey, you got to do what you gotta do!
But guess what? That money you made freelancing or doing odd jobs here and there will be taxed, so here’s a rundown of what you need to know:
· First, you’ll owe regular income taxes on that money at your ordinary tax rate.
· On top of that, you’ll also have to pay the self-employment tax—that’s a 15.3% tax which covers your share of Social Security and Medicare taxes—if you made more than $400 in self-employment income for the year. Don’t worry, you can probably write off half of that 15.3% on your tax return.
· If you expect to owe more than $1,000 in taxes for the year, the IRS wants you to pay quarterly estimated taxes, so it doesn’t all pile up toward the end of the year.
· You’ll probably receive 1099 forms from those you did work for, so keep an eye out for those. And you’ll need to fill out a Schedule SE form to report any other self-employment income you might have made during 2020.
Here’s a good rule of thumb for the future: Since the taxes from your side hustle income usually won’t be withheld like they would be in a “normal” job, you should set aside 25–30% of every paycheck you get for taxes. That way, you’re not scrambling around to pay your taxes when the deadlines roll around.
This one’s a little tricky. According to the Pew Research Center, about 1 out of 5 Americans relocated because of the pandemic or know someone who did. If you’re one of those remote workers who crossed state lines, you might be in for a tax surprise—and not the good kind.
You see, each state has its own tax system with its own set of rules—and most states that have their own income tax will impose them on anyone doing work in their state, even if they are just passing through.
Now, a few states already have “reciprocity agreements” in place that prevent income from being taxed twice, and a few others have offered tax relief for remote workers because of the pandemic. But some states are not budging on their state tax laws. That means a lot of folks who work in one state but live in another could end up owing taxes in two states this year.
Check your state’s tax laws and get in touch with a tax professional who will be able to help you figure out which state governments you might be getting a tax bill from.
Not so fast! Remember the Tax Cuts and Jobs Act that was passed a few years back? That law did away with a bunch of “miscellaneous itemized deductions” in exchange for a higher standard deduction. That means writing off the cost of setting up and maintaining a home office is off the table for most taxpayers.
Generally, the home office tax deduction is only available for self-employed individuals, freelancers or independent contractors who have a home office that is used exclusively for business purposes on a regular basis. That means office workers sent home by their employers during the pandemic don’t count, since they don’t work exclusively out of their home.
But that doesn’t mean you’re out of options! If you’ve had to spend some money on supplies that you needed to do your job from home, ask your employer if they’d be willing to reimburse you for those expenses.
Many colleges and universities across the country decided to shift all their classes online and send students home for the year. As a result, many students (or their parents) got a refund for what they paid for tuition and student housing. But if you used a 529 plan or Educational Savings Account (ESA) to pay for those educational costs, you might find yourself in some tax trouble.
Here’s why: Any money you take out of a 529 plan or ESA must be used for qualified educational expenses in order to be tax-free. Makes sense. But since that money isn’t being used to cover education expenses anymore, now you’ll have to pay income taxes on it and the IRS might smack you with a 10% penalty. Uh-oh.
To avoid paying those taxes and penalties, you need to put that money back into your 529 or ESA account. But don’t wait too long, because you only have 60 days from the date the refund was issued to do that. Clock’s ticking!
What is a 529 Plan?
A 529 plan (named after its section of the IRS code) is an investment account offering tax breaks that allows you to set aside money for qualified educational expenses—think things like tuition, fees, books, and room and board. Let’s dive into the details!
Most 529 plans are run by states, and there is one prepaid plan (more on that in a minute) run by a bunch of private colleges. Each 529 plan account has an account owner (often, though not always, a parent) and the beneficiary (the student). The owner controls the investments and chooses the beneficiary, which could be themselves. Anyone can contribute to a 529, and there are no income or age limits on contributions. And while most people associate these plans with saving money for their kids’ college education, as of 2020, you can now use the money in some 529 plans for K-12 public, private, religious school tuition, and apprenticeship programs.
While you have to pay a “gift tax” if you contribute more than $15,000 ($30,000 for a couple giving together) in one year, you can get around that by doing what’s called five-year gift tax averaging. What this means is that over a five-year period, you can give in unequal amounts up to $75,000 ($150,000 for a couple). Let’s say you give Junior $20,000 in years 1–3 for a total of $60,000. In years four and five, if you only contribute $7,500 per year, you’ll be at that $75,000 limit over the five years and qualify for the gift tax averaging, and the IRS doesn’t get a cut!
Like some retirement accounts, you make contributions to a 529 with after-tax dollars, and the earnings are tax-deferred. That means qualified distributions (aka the money a beneficiary takes out) for a 529 are completely tax-free.
Now there are two basic types of 529 plans you’ll want to know about: prepaid plans and savings plans. There are some pretty important differences between these two, so be sure to focus here.
A 529 prepaid plan locks in tuition at current rates, so you can prepay future college costs. Today, there are 19 prepaid plans, but only 10 are accepting applicants. With the way tuition is rising this seems like a pretty good deal. Before you’re shouting, “Sign me up!” you might want to ask yourself why don’t all states offer them? Well, that’s what they call a red flag, people! You need to understand the increases in college costs can outpace the return on the prepaid plan. So, you may have to shell out more cash to cover the tuition costs. Some prepaid plans offer guarantees, but some states don’t honor the guarantee. Listen up, this could mean the money may not be there when your child is ready to use it!
Experts say to plan for an annual 8% average tuition hike, which means tuition costs would double every nine years, or double twice from birth to college age!3 That means if the tuition today is $50,000, it would be about $200,000 18 years from now.
· You can buy units, or credits, at participating schools (usually public and in-state).
· There are no annual contribution limits, but you could have to pay a federal “gift tax” if you contribute more than $15,000 in a year.
· There are no age limits for contributions or using the money in the prepaid plan (in most states).
· Tuition rate may not be guaranteed.
· Can’t be used to pay for future room and board.
· Doesn’t let you prepay for K-12 tuition.
· Has residency requirements for the owner and/or beneficiary.
· You can’t transfer the money to a child of the beneficiary (your grandchild) if your kid doesn’t end up going to college.
· May charge an enrollment/application fee and ongoing administrative fees.
Bottom line: Steer clear of prepaid plan options.
A 529 savings plan allows you to choose a predetermined investing portfolio that you can use to grow money for your child’s future educational expenses. You can reallocate the money within the portfolio you choose, but only twice a year.
The SECURE Act, passed in December 2019, created new qualified expenses for 529 savings plans. That means money in your plan can now be used for apprenticeships, homeschooling expenses, and repayment of up to $10,000 of student loans for the beneficiary and their siblings.4
With a 529 savings plan, you can shop around and see if 529s from other states have better investment options and lower fees. My best piece of shopping advice is to work with an investment pro who knows these plans better than anyone.
· Each savings plan varies from state to state, and you don’t have to use your state’s plan.5 You can go with the most affordable plan!
· There are no annual contribution limits, but you may have to pay a federal “gift tax” if you contribute more than $15,000 in a year.
· There’s no age limit for contributions or distributions. If your 30-something decides to go back to school, they can still use the money.
· There are no income restrictions for contributions or distributions.
· Growth and withdrawals are not subject to federal income tax if used for qualified educational expenses, including tuition and books.
· If you don’t use the money for one child, you can transfer the funds to another child or grandchild.
· If you want to use money in a savings plan for noneducational expenses, you can. It’s your money! But nonqualified withdrawals are taxed and hit with a 10% penalty. Oh, and the person who receives the distribution pays the tax.6
· You cannot lock in tuition costs.
· May charge an enrollment/application fee, annual account maintenance fees, ongoing program management fees, and ongoing asset management fees.
The tax-deferred growth and tax-free withdrawals for qualified expenses are attractive reasons to have a 529 plan. Another is the higher contribution rates that can reach up to $500,000, depending on the state.7 But obviously the two types of plans are not created equal here.
Investing in 529 savings plans with good growth mutual funds is the best way to go with a 529. Savings plans provide a better return by investing your money instead of locking in a tuition rate with the prepaid plan. Plus, with most prepaid tuition plans, the state will only refund the principal (not any interest you’ve earned) if your child decides not to go to college.
Now, in addition to 529s, when looking at college planning for Junior, you’ll also want to check out an Education Savings Account (ESA). When it comes to a 529 and an ESA, the strongest argument for an ESA is the virtually unlimited investment options.
Investing in 529 savings plans with good growth mutual funds is the best way to go with a 529. Savings plans provide a better return by investing your money instead of locking in a tuition rate with the prepaid plan.
How much student loan debt do you think the average college student racks up by the time they cross the graduation stage? $5,000–10,000? Think again. According to the Wall Street Journal, the average college graduate’s student loan debt is at a whopping $37,172. And that’s just the average!
The most recent data from the Federal Reserve Bank of New York shows the overall student loan debt in America hovering just over $1.3 trillion. Trillion!
At this rate, college graduates will be lucky to have their student loans paid off before their kids start college! As a parent, you’re probably thinking there has to be another way. Well, there is! You can start saving for college by opening a college fund. It’s not easy, but with focused dedication, hard work, and careful planning, it’s possible to save enough so your child can go through college debt-free!
Saving for college is Baby Step 5, and we generally advise parents to start saving for college as soon as they can. But a lot of times it’s a bit more complicated than that.
Starting a college fund is a great goal, but it’s not the only goal. You likely have other financial priorities like paying off your mortgage, your credit card bill, or your own student loan debt.
You don’t want to neglect your own money goals, especially when it comes to retirement savings. There are other ways to pay for college, like through grants or scholarships. Bottom line, you need to take care of your future first.
Before you can start saving for your children’s college fund, it’s important you’ve already done the following:
First, you need to figure out how much you need to save for college. We recommend saving for your children’s college using the following three tax-favored plans:
An ESA allows you to save $2,000 (after tax) per year, per child. Plus, it grows tax-free! If you start when your child is born and save $2,000 a year for 18 years, you would only invest $36,000. While the rate of growth will vary based on the investments in the account, you’ll likely earn a much higher rate of return with an ESA than you would in a regular savings account—and you won’t have to pay taxes when you withdraw the money to pay for education expenses.
Why We Like It:
Why We Don’t:
If you want to save more for your children’s college education, or if you don’t meet the income limits for an ESA, then a 529 Plan could be a better option. Look for a 529 Plan that allows you to choose the funds you invest in through the account. Some Financial Advisors warn against using a 529 Plan that would freeze your options or automatically change your investments based on the age of your child.
The right 529 Plan will also give you the option to change the beneficiary to another family member. So, if your firstborn decides not to go the college route, you can still use the funds you saved for the next kid in line.
Why We Like It:
Why We Don’t:
An UTMA/UGMA differs from ESAs and 529 Plans in how they aren’t designed just for education savings. The account is in the child’s name but is controlled by a custodian (usually a parent or grandparent). This person manages the account until the child reaches age 21. At age 21 (age 18 for the UGMA), control of the account transfers to the child to use any way they choose.
Why We Like It:
Why We Don’t:
You as the parents don’t have to be the only source for college savings. Get your kids involved in the effort. Even though your child is a full-time student, there’s no reason they can’t start building up their own savings fund. At the very least, doing this will help establish healthy money habits they’ll carry into the future.
Here are some great college saving tips to help them get started:
It’s free money for college that you don’t have to worry about paying back. If your child excels in athletics, academics or extracurricular activities, they should try to get rewarded for it. Encourage your child to apply for any scholarship they’re eligible for—even the small ones add up fast!
Advanced Placement (AP) classes give high school students the opportunity to earn college credits while they’re still in high school. Every AP class taken in high school is one less class you’ll need to pay for in college. Advise your child to talk to their academic counselor for more information.
Whether they take on a full-time gig during the summer or a part-time job during the school year, your child will be able to save money for college and gain work experience to put on their resume.
If your student is serious about building up their college savings, they’ll need a safe place to keep all that money. Most banks offer accounts specifically for students, which usually means waived monthly maintenance fees and no minimum balance requirements. If your child is under 18, you’ll need to be the joint account holder.
If your child gets birthday money or an allowance, suggest they put it right into their savings account so they aren’t tempted to spend it.
It’s never too early to start thinking about a college savings plan. Whether your child is a teenager or toddler, the best time to start a college fund is now.
Some workers might have noticed that their paychecks got slightly bigger during the last few months of 2020. That’s because the Trump administration signed an executive order that allows companies to defer payroll taxes (Social Security payroll taxes, to be specific) from Sept. 1, 2020 to Dec. 31, 2020.
So, if you’re a federal government employee or work at a company that decided to defer your Social Security payroll taxes for the rest of 2020, you saw a temporary 6.2% bump in your paychecks. Don’t jump for joy just yet, because there’s a catch.
The key word here is deferred. This is not a tax break—those taxes still need to be paid. That means companies will have to make up that money between January and April 2021, so you’ll be seeing less money in your paycheck during that time. So, brace yourself for that!
It depends. The IRS lets you deduct medical, dental and other health expenses that fall above 7.5% of your adjusted gross income (that’s the part of your income that is taxable) for the year.
For example, if your adjusted gross income is $50,000, first you would multiply that by 7.5% to find out that you can only deduct expenses that exceed $3,750. If you spent $5,000 in medical expenses in 2020, that means you can only deduct $1,250 in medical expenses.
But here’s the kicker: You can only deduct medical expenses if you choose to pass on the standard deduction and itemize your deductions instead.
Does it make sense to itemize your deductions? For 2020, the standard deduction is $12,400 for single filers and $24,800 for married couples. It really only makes sense to itemize if your itemized deductions (including medical expenses) are greater than the standard deduction, so choose wisely!
The CARES Act didn’t just set out to help individuals and families—it also tried to provide some financial assistance for struggling small business owners by offering them Paycheck Protection Program (PPP) loans. These loans were designed to be “forgiven” as long as they were used for certain business expenses—particularly payroll, rent or interest on mortgage payments, and utilities.
And while income from debt forgiveness usually counts as taxable income, the CARES Act makes an exception for PPP loan forgiveness. That means that as long as you used those PPP funds for eligible expenses, that money will not be taxed . . . as long as your loan forgiveness application is approved (more on that in a minute).
But there are a few problems (aren’t there always?): The IRS says that any expenses you paid with money from those PPP loans cannot be deducted from your taxable income. So, if you applied for a PPP loan, borrowed $100,000, and spent all of that money on payroll, rent and utilities, you won’t be able to deduct a dime of those business expenses from your taxes like you normally would.
Many members of Congress are saying, “Wait a minute, we didn’t mean for that to happen!” But unless they pass legislation to make those expenses deductible, you won’t be able to take those deductions like previous years.
Oh, and all that “forgiveness” business? As of October 2020, the Paycheck Protection Program dished out $525 billion in loans to 5.2 million borrowers . . . and not a single loan has been forgiven. Borrowers and banks are frustrated with the Small Business Administration’s handling of loan forgiveness applications and confused about next steps. Surprise, surprise.
Do not take out a PPP loan! We hate to tell you “we told you so,” but . . . we told you so. President Ronald Reagan once said that the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.” He might have been onto something!
Without a doubt, this tax season is going to be a hot mess for millions of Americans who have seen their lives turned upside down by this pandemic. If you’re one of them, it might be a good idea to reach out to a tax advisor who is up-to-date on the latest news and changes for this tax season.
If you want to make sure you get your taxes done right and avoid making huge tax mistakes that could cost you hundreds or thousands of dollars, go to a Professional Tax Preparer.
The IRS will step up revenue officer contacts focused on tax return preparers who in prior years have failed to timely file one or more of their own tax returns. The purpose of these contacts is to remind tax return preparers of their own tax filing and paying obligations and bring them into compliance. As noted in a recent report by the Treasury Inspector General for Tax Administration:
When preparers cannot manage their own tax affairs, or worse, if they intentionally claim credits and deductions to which they are not entitled, they could undermine the tax administration system.*
These contacts will generally be conducted by telephone because the safety of IRS employees and the public remains a top priority for the IRS. Unlike face-to-face contacts, which are generally unannounced, these tax preparers will receive a letter from the revenue officer scheduling the contact.
IRS revenue officers will share information with tax return preparers about their tax filing and paying obligations and the consequences of failing to meet those obligations. For those tax return preparers who owe, revenue officers will identify appropriate ways to resolve their tax compliance issues.
These visits are part of an ongoing broader effort by the IRS to ensure compliance and fairness.
How the CARES Act changes deducting charitable contributions
Whether taxpayers are supporting natural disaster recovery, COVID-19 pandemic aid or another cause that’s personally meaningful to them, their charitable donations may be tax deductible. These deductions basically reduce the amount of their taxable income.
Here’s how the CARES Act changes deducting charitable contributions made in 2020:
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.
However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose. The law changed in this area due to the Coronavirus Aid, Relief, and Economic Security Act.
The CARES Act also suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory. More information about these changes is available on IRS.gov.
Here’s who qualifies for the employee business expense deduction
Employee business expenses can be deducted as an adjustment to income only for specific employment categories and eligible educators.
Taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions, unless they are a qualified employee or an eligible educator. They must complete Form 2106, Employee Business Expenses to take the deduction.
If someone falls into one of these employment categories, they are considered a qualified employee:
No other type of employee is eligible to claim a deduction for unreimbursed employee expenses.
Here’s what makes something a qualified expense:
The Internal Revenue Service (IRS) has announced the annual inflation adjustments for the tax year 2021, including tax rate schedules, tax tables and cost-of-living adjustments.
These are the numbers for the tax year 2021 beginning January 1, 2021. They are not the numbers and tables that you’ll use to prepare your 2020 tax returns in 2021. These are the numbers that you’ll use to prepare your 2021 tax returns in 2022.
If you aren’t expecting any significant changes in 2021, you can use the updated numbers to estimate your liability. If you plan to make more money or change your circumstances (for example, you’re getting married or starting a business), consider adjusting your withholding or tweaking your estimated tax payments.
Tax Brackets and Tax Rates
There are still seven (7) tax rates in 2021. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here’s how those break out by filing status:
Single Tax Rates 2021
Married Filing Joint Tax Rates 2021
Head of Household Tax Rates 2021
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Trust and Estates 2021
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Note: These rates remain in place no matter what happens in Presidential Election. For these rates to change, Congress would have to vote to change the tax rates.
Standard Deduction Amounts
The standard deduction amounts will increase to $12,550 for individuals and married couples filing separately, $18,800 for heads of household, and $25,100 for married couples filing jointly and surviving spouses.
Personal Exemption Amount
There will be no personal exemption amount for 2021. The personal exemption amount remains zero under the Tax Cuts and Jobs Act (TCJA).
Alternative Minimum Tax (AMT) Exemption Amounts
The alternative minimum tax (AMT) exemption amounts are adjusted for inflation. Here’s what those numbers look like for 2021:
The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest.
For 2021, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,100 or (2) the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount).
Under the TCJA, your child must pay taxes on their unearned income, but if that amount is more than $1,100, but less than $11,000, you may be able to elect to include that income on your return rather than file a separate return for your child.
Capital Gains Tax
Capital Gains rates will not change for 2021, but the brackets for the rates will change. Most taxpayers pay a maximum 15% rate, but a 20% tax rate applies if your taxable income exceeds the thresholds set for the 37% ordinary tax rate. Exceptions also apply for art, collectibles and section 1250 gain (related to depreciation). The maximum zero rate amounts and maximum 15% rate amounts break down as follows:
Schedule A (Itemized Deductions)
There are changes to itemized deductions found on Schedule A, including:
Medical and Dental Expenses. The “floor” for medical and dental expenses is 10% in 2021, which means you can only deduct those expenses which exceed 10% of your AGI.
State and Local Taxes. Deductions for state and local sales, income, and property taxes remain in place and are limited to a combined total of $10,000, or $5,000 for married taxpayers filing separately.
Home Mortgage Interest. You may only deduct interest on acquisition indebtedness—your mortgage used to buy, build or improve your home—up to $750,000, or $375,000 for married taxpayers filing separately.
Charitable Donations. The percentage limit for charitable cash donations to public charities remains at 60% for 2o21.
Casualty and Theft Losses. The deduction for personal casualty and theft losses has been repealed except for losses attributable to a federal disaster area.
Job Expenses and Miscellaneous Deductions subject to 2% floor. Miscellaneous deductions, including unreimbursed employee expenses and tax preparation expenses, which exceed 2% of your AGI have been eliminated. That includes the home office deduction.
There are no Pease limitations in 2021.
An above-the-line deduction is one that you can claim even if you don’t itemize your deductions. Here’s a look at two of the most popular:
Student Loan Interest Deduction. For 2021, the $2,500 deduction for interest paid on student loans begins to phase out when modified adjusted gross income (MAGI) hits $70,000 ($140,000 for taxpayers filing a joint return) and is completely phased out when MAGI hit $85,000 ($170,000 for taxpayers filing a joint return).
Elementary and Secondary School Teachers Expenses. For 2021, qualifying teachers can claim $250 for expenses paid or incurred for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used in the classroom.
Charitable Contributions. For 2020, if you don’t itemize your deductions, you can claim a charitable deduction of up to $300 for cash contributions. The maximum deduction per return is $300 (it’s not per person). Unless Congress extends the provision, that is not the case for 2021.
Tax Credits & Tax Deductions
Some additional tax credits and deductions have been adjusted for 2021. Here’s a look at a few of the most popular:
Child Tax Credit. The child tax credit is $2,000 per qualifying child; up to $1,400 is refundable, subject to phaseouts. AGI phaseouts are not indexed for inflation and remain at $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
Earned Income Tax Credit (EITC). For 2021, the maximum EITC amount available is $6,728 for married taxpayers filing jointly who have three or more qualifying children (it’s $543 for married taxpayer with no children). Phaseouts apply.
Adoption Credit. For 2021, the credit for an adoption of a child with special needs is $14,440, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $14,440. The available adoption credit begins to phase out for taxpayers with MAGI in excess of $216,660; it’s completely phased out at $256,660 or more.
Lifetime Learning Credit. For the 2021 tax year, the credit begins to phaseout once MAGI is $59,000 ($119,000 for taxpayers filing a joint return). The credit is completely phased out for taxpayers with MAGI in excess of $69,000 ($139,000 for taxpayers filing a joint return).
Medical Savings Accounts (MSA). For 2021, a high-deductible health plan (HDHP) is one that, for participants who have self-only coverage in an MSA, has an annual deductible that is not less than $2,400 but not more than $3,600; for self-only coverage, the maximum out-of-pocket expense amount is $4,800. For 2021, HDHP means, for participants with family coverage, an annual deductible that is not less than $4,800 but not more than $7,100; for family coverage, the maximum out-of-pocket expense limit is $8,750.
Health Flexible Spending Arrangements. For 2021, the dollar limitation for contributions to health flexible spending arrangements is $2,750. If the plan permits the carryover of unused amounts, the maximum carryover amount is $550.
There is no shared individual responsibility payment for the tax year 2021.
Foreign Earned Income Exclusion.
For 2021, the foreign earned income exclusion amount is $108,700.
Section 199A deduction (also called the pass-through deduction)
As part of the TCJA, sole proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% to bring the tax rate lower for qualified business income. The deduction is subject to threshold and phase-in amounts. For 2021, those amounts will look like this:
Section 199A phaseout amounts
Revocation or Denial of Passport
For 2021, the threshold amount for seriously delinquent tax debt before your passport is certified to the State Department to be revoked is $54,000.
Federal Estate Tax Exemption
The federal estate tax exemption for decedents dying will increase to $11.7 million per person or $23.4 million per married couple in 2021.
Gift Tax Exclusion (& Foreign Gifts)
The annual exclusion for federal gift tax purposes will remain at $15,000 in 2021. That means that you can gift $15,000 per person to as many people as you want with no federal gift tax consequences in 2021; if you split gifts with your spouse, that total is $30,000. The exclusion amount for gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) is $159,000.
The threshold to report gifts from certain foreign persons in 2021 is $16,815.
Comparisons & More
You can read all of the numbers in Revenue Procedure 2020-45 (downloads as a PDF).
Receiving a tax refund might be the only thing people like about filing their return, and it looks like some taxpayers are about to get just a little more money from the Department of Treasury.
The Internal Revenue Service today announced that it “will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.” As with seemingly everything else in 2020, this is a direct result of the coronavirus pandemic.
Federal law requires the IRS issue interest payments to taxpayers who file on time after a disaster postpones the filing deadline. In this case, the obvious culprit is COVID-19 pushing Tax Day back to July 15, 2020. But before people start exchanging socially distanced air high fives, there are a few things they’ll need to know:
The longer it takes for a timely filed tax refund to arrive after the original deadline (April 15, 2020), the more interest the IRS will owe. And since the interest is calculated using the adjusted quarterly rate (compounded daily), that can sometimes result in using a blended rate for refunds that “span quarters.”
Here are the rates specifically cited by the IRS:
Interest payments affected by the blended rate will be calculated using “the number of days falling in each calendar quarter.” Perhaps making it a little easier to report a taxable interest payment, the IRS will send letters containing Form 1099-INT at the beginning of next year.
Taxpayers should generally expect to receive their tax refund interest payment the same way they received their tax refund: “In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account …. [and] everyone else will receive a check.”
As you well know, many people plan their finances based on the assumption that they will receive a tax refund every year. When everything feels like it’s up in the air, a little good news is welcome—even if it requires some paperwork.
Treasury, IRS provide tax relief to investors and businesses affected by COVID-19 in new markets tax credit transactions
IR-2020-120, June 12, 2020
WASHINGTON — The Treasury Department and the Internal Revenue Service today provided tax relief for certain taxpayers affected by the COVID-19 pandemic involved in new markets tax credit transactions.
The taxpayers receiving relief through today’s guidance are community development entities (CDEs) and qualified active low-income community businesses (QALICBs) investing and conducting businesses in low-income communities.
Notice 2020-49 (PDF) provides a CDE or QALICB with relief for certain specified time-sensitive acts that are due to be performed between April 1, 2020, and Dec. 31, 2020, in order to meet requirements under section 45D of the Internal Revenue Code and its regulations. A CDE or QALICB may perform these acts by Dec. 31, 2020. The additional time is provided for the following time-sensitive acts:
If a CDE is due to invest cash received in a qualified low-income community investment (QLICI) on or after April 1, 2020, and before Dec. 31, 2020, that cash investment is treated as invested in a QLICI to the extent it is invested by Dec. 31, 2020.
If a CDE is due to reinvest certain amounts of cash or payment in a QLICI on or after April 1, 2020, and before Dec. 31, 2020, the amounts are treated as continuously invested in a QLICI to the extent the amounts are so reinvested by Dec. 31, 2020.
If a QALICB is due to expend the proceeds of a capital or equity investment or loan by a CDE for construction of real property on or after April 1, 2020, and before Dec. 31, 2020, such proceeds are treated as a reasonable amount of working capital of the QALICB if so expended by Dec. 31, 2020.
Additional information about tax relief for businesses affected by the COVID-19 pandemic can be found on IRS.gov.
IRS provides guidance on employer leave-based donation programs that aid victims of the COVID-19 pandemic
IR-2020-119, June 11, 2020
WASHINGTON — The Internal Revenue Service today provided guidance for employers whose employees forgo sick, vacation or personal leave because of the COVID-19 pandemic.
Notice 2020-46 (PDF) provides that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo will not be treated as compensation. Similarly, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer.
Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the respective requirements of either section.
Notice 2020-46 provides further details for employers with leave donation programs.
Additional information about tax relief for those affected by the COVID-19 pandemic can be found on IRS.gov.
The IRS unveiled a new online tool to help non-filers register to receive an Economic Impact Payment (EIP): the “Non-Filers: Enter Payment Info Here” feature on IRS.gov. This new resource was quickly developed to help more qualifying Americans receive their payment, since the Treasury will begin sending EIPs next week.
While the IRS has repeatedly explained that the vast majority of taxpayers won’t have to do anything to receive an EIP, eligible non-filers who aren’t recipients of Social Security, Railroad Retirement, or Social Security Disability Insurance still need to provide some basic information to get the payment. In general, this includes:
The reason is that the IRS is currently required to use filing information from tax-year 2018 and 2019 returns and Forms SSA-1099 and RRB-1099 to determine whether filers qualify for an EIP and where it will be sent. The IRS simply doesn’t have up-to-date information for those who haven’t filed for more than a couple of years and aren’t receiving the government benefits mentioned above.
Luckily, the IRS says that using the “Non-Filers: Enter Payment Info Here” tool should be a straightforward affair: “First, visit IRS.gov, and look for ‘Non-Filers: Enter Payment Info Here.’ Then provide basic information including Social Security number, name, address, and dependents. The IRS will use this information to confirm eligibility and calculate and send an Economic Impact Payment.” Filers who want to receive their payment via direct deposit will be able to choose that option while filling out their information.
The IRS is also launching the “Get My Payment” tool on April 17, which the agency says will “help everyone check on the status of their payments … including the date their payment is scheduled to be deposited into their bank account or mailed to them.” Those who had not previously supplied direct-deposit banking information will be able to use Get My Payment to do just that.
Additional EIP- and COVID-19-related updates will be available on the “Coronavirus Tax Relief and Economic Impact Payments” page on IRS.gov.
Overview of Program: The CARES Act provides businesses with fewer than 500 employees, including sole proprietorships and non-profits, access to up to a $10 million loan through the ”Covered Period”, which runs from February 15, 2020 through June 30, 2020. The program includes a provision that allows these loans to be forgiven by the Small Business Administration (”SBA”). It is possible for the entire principal of the loan to be forgiven. Borrowers of this loan program will receive the loan without the need to pledge collateral or provide a personal guarantee.
Eligible U.S. citizens or permanent residents who:
You can provide the necessary information to the IRS easily and quickly for no fee through Non-Filers:
Enter Payment Info. IRS will use this information to determine your eligibility and payment amount and send
you an Economic Impact Payment. After providing this information you won’t need to take any additional action.
U.S. citizens or resident aliens who:
Most eligible U.S. taxpayers will automatically receive
their Economic Impact Payments including:
Eligible U.S. citizens or permanent residents who:
You can provide the necessary information to the IRS easily and quickly for no fee through Non-Filers: Enter Payment Info. We will use this information to determine your eligibility and payment amount and send you an Economic Impact Payment. After providing this information you won’t need to take any additional action.
Clicking “Non-Filers: Enter Payment Info Here” above will take you from the IRS site to Free File Fillable Forms, a certified IRS partner. This site is safe and secure.
Follow these steps in order to provide your information:
You will receive an e-mail from Customer Service at Free File Fillable Forms that either acknowledges you have successfully submitted your information, or that tells you there is a problem and how to correct it. Free File Fillable forms will use the information to automatically complete a Form 1040 and transmit it to the IRS to compute and send you a payment.