Covid-19 affected every aspect of our everyday lives last year, so, why wouldn’t it impact the 2020 tax season as well? If you’re starting to file your taxes and are curious to know how the pandemic will impact your tax bill, here are a few key points to consider.
The Tax Season Start Date
Typically, the IRS begins processing tax returns in mid-January, but this tax season didn’t officially kick off until February 12, thus pushing the tax deadline to May 17. At first thought, you may think this buys you time to file your taxes. It does, however, if you’re expecting a refund, you should file your return ASAP and do it electronically with a link to your bank account for a direct deposit.
More food for thought? If your 2019 income didn’t qualify you for economic stimulus payments but your 2020 income did, filing your 2020 taxes sooner could enable you to receive stimulus payments.
Stimulus Payments and Taxes
If you received Covid-19 Economic Impact Payments, a.k.a. stimulus checks, here are important facts to know regarding your taxes:
Covid-19 stimulus payments are not taxable. If you received stimulus checks, they will not have any impact whatsoever on your taxes.
Stimulus money does not have to returned. If your 2020 tax return ends up showing that your income exceeded the eligibility limits for the stimulus ($75,000 or less for an individual, $112,500 for the head of household, $150,000 for a married couple), there’s no need to worry. As long as your 2018 and 2019 income qualified you, you can keep the money.
If you are eligible for a stimulus check but haven’t received one, you can still file for it. If you file for the Recovery Rebate Credit on your 2020 tax return, you can receive a stimulus payment in the form of a tax credit. Depending on your situation, this will reduce the amount you owe or increase your refund payment.
Special Rules for Retirement Withdrawals and Medical Expenses
Covid-19 created a financial burden for many people, thus requiring unusual actions to help cover expenses. Here’s how your taxes may be affected…
Tax penalties to withdraw from retirement accounts have been voided. If you had to withdraw money from your 401(k) or IRA to cover expenses in 2020, there’s good news. The IRS allowed taxpayers to take up to $100,000 from retirements accounts such as a 401(k), 403(b), or IRA between January 1, 2020 and December 30, 2020 without having to pay a 10% additional tax on early distributions. It gets better. You have three years to report the distribution, and if you repay the distribution within that time frame, you can file amended tax returns to recoup the taxes you paid.
Additional medical expenses can be deducted. If you paid more than 7.5% of your adjusted gross income for medical expenses in 2020, that amount can be deducted from your taxes. If you have a qualifying high-deductible health plan, you can also self-fund your HSA (health savings account) before the tax deadline and use those funds to pay outstanding medical bills or future medical expenses.
Maggi Tax Advisory & Financial Group Can Help with Your 2020 Taxes
Taxes are confusing, and this year, they’re more confusing than ever! Maggi Tax Advisory & Financial Group can help! To learn more about our financial services, please call our Hillsborough office at (813) 850-0131 and our Pinellas/Pasco office at (727) 351-6168