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Tax Tips in the Age of Corona
By Jean Chatzky* Everybody breathe. You’ve just been given a month’s reprieve, thanks to the IRS. Because the agency is mired in paperwork, the deadline to file federal and state income taxes has been moved back until May 17. Still, there’s no time like today to get your paperwork in order and get to it. If you prefer to let a professional handle it, there’s still time to bring everything to a tax preparer who can help ensure you are taking all the deductions and claiming every credit you qualify for.
Some lower and middle-income filers have already discovered a bit of good news, in that they are eligible for a larger return than in previous years because of missed or partial economic impact payments, also known as stimulus funds, according to The Tax Foundation, an independent tax policy nonprofit.
Here’s what you need to know to make sure you aren’t leaving money on the table.
Recovery rebate credit
There are at least three ways some Americans can receive additional money in the form of a refundable tax credit on their 2020 individual income tax returns. First, if you didn’t receive one or both of the stimulus payments because of processing delays or other errors, you can claim the rebate recovery credit on your 2020 tax return.
Also, if you earned less money last year than in 2019, you can use your 2020 adjusted gross income when calculating any stimulus-related tax credits you are owed. When determining who was eligible for the stimulus payments in 2020, the government used 2019 and 2018 tax returns to decide who qualified. That means if you received a partial stimulus payment or no payment at all because your income in 2019 was higher than the threshold, you may be able to claim an additional payment if you earned less in 2020 and fell below that threshold.
People who didn’t receive a payment for an eligible dependent, which could include some teens and new babies, should also be able to receive the credit on their returns.
Stimulus payments not taxable income
More good news: Adjustments related to the stimulus payments are only made in a tax filer’s favor, so you won’t see an increase in your tax liability related to those payments, according to The Tax Foundation. Also, people who received a stimulus payment in 2020 should have received a letter informing them that the 2020 stimulus payments are considered tax credits, which means they are not taxable income. Unemployment payments, however, will be taxed.
Taking the home office deduction
With millions of Americans losing their jobs in 2020 because of the pandemic, you may have added a side gig or became officially self-employed and now call part of your home your office. While the eligibility rules for claiming a home office deduction relaxed in 2018, there’s little wiggle room. Employees working from home because of COVID-19 aren’t eligible.
People who are self-employed can take the deduction if they use part of their home ‘regularly and exclusively’ for business. While your home office doesn’t need to be a separate room, it has to be an area where you don’t do anything else. That means it can’t be a kitchen table. Those who qualify can deduct portions of rent or mortgage interest, utilities and insurance, based on the part of your home used as a home office. Or, you can take what’s known as the simplified option that’s worth $5 per square foot of a home office, up to 300 square feet, for a maximum deduction of $1,500.
Make $72,000 or less? File for free
If you have an adjusted gross income of $72,000 or less, you are eligible to use the IRS Free File Program, a public-private partnership between the Internal Revenue Service and tax preparation and filing software groups who provide products at no cost to those who qualify. Learn more at https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
* This guest article is from the “Your Money Blog” in ‘Mid Oregon’s Digital Banking Credit Savvy resource’. It is made possible by Savvy Money. “Tax Tips in the Age of Corona” by Jean Chatzky with Casandra Andrews was published in March 2021.
Information about 2021 Economic Impact Payment
With the new American Rescue Plan Act of 2021, you may have questions about the latest Economic Impact Payment. Mid Oregon Credit Union has assembled some information and resources to assist our members and the community.
The 2021 Economic Impact Payment differs slightly from the past two stimulus payments. Changes include:
- Eligible households should receive $1,400 for individuals or $2,800 for married couples, and $1,400 per eligible dependents.
- Higher earners receive smaller to no payments. If your Adjusted Gross Income (AGI) from your 2019 or 2020 tax returns is more than $75,000 per individual, or $150,000 for joint filers, your payment may be lower, or be phased out entirely.
- Dependents older than age 16 from eligible households will receive $1,400 payments.
To estimate your payment, you can use this quick calculator from Grow.
Where can you find information about your payment?
The IRS’s Get My Payment webpage is your best resource. It includes the Get My Payment tool, answers to frequently asked questions, and links to information about the first and second Economic Impact Payments and the 2020 Recovery Rebate Credit.
When will payments arrive?
Electronic payments started as early as March 12 and could continue for several weeks. Paper checks or debit cards mailed to households may take a bit longer to arrive.
How do I know when my payment has been received?
You may need to check your financial institution’s account over the next few weeks for a deposit. The most efficient way to use your institution’s online banking. If alerts are available with your online banking, set one to be notified any time a deposit is processed. Using online resources will save time and prevent potential phone or in-person wait times with your institution. During these periods, financial institutions typically experience a higher number of calls and visits to branches. For more information about Mid Oregon’s online (digital) banking, click here.
What if an address or account number has changed?
Payments should be issued to consumers in the same manner as their prior Economic Impact Payment. If you had difficulties with a previous round of payments or something has changed, you should visit the IRS’s Get My Payment webpage for answers to your questions and to update your information on file.
What if I received a payment by debit card?
To learn more about activating and using an Economic Impact Payment (EIP) card, visit the Federal Treasury website. The site also provides instructions on how to transfer debit card funds to your financial institution. To set up the transfer, you will need your financial institution’s routing number and account number.
For additional updates about the 2021 Economic Impact Payment, visit Mid Oregon’s COVID-19 information webpage.
The Case for Married Couples to File Joint Tax Returns or Separate Tax Returns
By Chris O’Shea* The annual tax season comes with a question for married couples: Do you file jointly or separately? While most married couples file together, there are some reasons you might want to consider filing separately.
Here’s the case for both methods.
Why You Should File Jointly
Lower tax rate. Typically, married couples who file jointly enjoy a lower tax rate than married couples who file separately.
Tax benefits. As US News reports, if you’re married, you need to file jointly to qualify for some tax breaks. If you file jointly, you’re eligible for the Earned Income Credit, the American Opportunity Credit, the Lifetime Learning Credit, student loan interest deduction and more.
Deducting retirement contributions. If you file jointly, you’ll have higher income cutoffs to make Roth IRA contributions. Married couples can contribute to a Roth IRA if their adjusted, joint-tax return lists a modified adjusted gross income of less than $208,000 in 2021. If you’re married and filing separately, the income cutoff drops all the way down to less than $10,000.
Why You Should File Separately
You and your spouse are high earners. If you and your spouse earn high incomes that are roughly the same, it might make more sense to file separately. Your tax rate might actually be lower if you take the separate returns route.
You have high medical costs. Another reason to file separately is if you have high medical bills. You can deduct unreimbursed medical expenses, but only if they exceed 7.5 percent of your adjusted gross income. If you have extensive medical bills, it might make sense to file by yourself so you can easily cross that 7.5 percent threshold.
You’re concerned about liability. If you’re concerned about tax liability, you might want to file separately. If you file your own forms, you won’t be tied to your partner’s potential tax or legal issues.
This guest article is from the “Your Money Blog” in ‘Mid Oregon’s Digital Banking Credit Savvy resource’. It is made possible by Savvy Money. “The Case for Married Couples to File Joint Tax Returns or Separate Tax Returns” was published in March 2021.