What you need to know about how the COVID-19 pandemic changed tax laws
The coronavirus pandemic has eased significantly across the country as the economy opens up. But the resulting tax ramifications are still being felt.
Among the changes: The Internal Revenue Service has started reimbursing millions of Americans in two separate areas: unemployment benefits and child tax credits. The changes relate to unusual arrangements adopted in part to relieve financial stress caused by the pandemic.
The IRS is also reminding self-employed workers that they may have a deferred tax payment due later this year – also thanks to COVID-19 relief legislation.
Unemployment benefits are coming
The IRS has started issuing refunds averaging $ 1,265 to nearly 4 million taxpayers who received unemployment compensation last year. Others will not receive payments but will benefit from adjustments reducing their unpaid tax bills.
Unemployment benefits are normally taxable, but coronavirus relief legislation has allowed low and moderate income households to receive up to $ 10,200 in tax-free unemployment assistance. This exclusion applied to individuals and married couples whose adjusted gross income was less than $ 150,000.
The US bailout was enacted in March, after millions of Americans had already filed their 2020 returns, requiring an adjustment that the IRS mostly made without requiring action from affected taxpayers.
Direct deposit refunds began on July 14, and the IRS began sending out paper check refunds on July 16. Refunds will continue throughout the summer, but in some cases, they will be applied to unpaid tax bills or other federal or state debts.
For the current round, the IRS has identified approximately 4.6 million taxpayers due to an adjustment, of which approximately 4 million will receive a refund. The IRS issued 2.8 million similar refunds in June.Ultimately, around 13 million taxpayers could benefit from it.
As stated, most people don’t need to take any action because the IRS has calculated the correct taxable amount on unemployment benefits and the resulting tax impact. But some people may want to file an amended return if the excluded unemployment income means they could now be eligible for deductions or credits that they had not previously claimed. Examples cited by the IRS include the Additional Child Tax Credit and the Earned Income Tax Credit.
In addition to refunds, taxpayers can expect to receive letters from the IRS within 30 days of the adjustment, notifying them of the action taken.
Upcoming Child Tax Credit Payments
The IRS has also started issuing refunds related to the Child Tax Credit.
This is a potentially confusing situation as the credits have increased compared to last year with some amounts being prepaid in the second half of this year.This is a great initiative, with credits available for families with more than 59 million children (including 1.4 million in Arizona). However, public awareness of the changes is lacking, according to polls.
Tiffany Jarrett, a single mother to Chandler, said she looks forward to the expanded child tax credit to help pay for groceries and other basic expenses for herself, her son and daughter, both teenagers. She also plans to use some of the money for after-school-type programs to keep her children busy.
An accountant who works for a law firm, Jarrett said she lost a few hours of work during the pandemic when court operations were curtailed. She said the credit payments would help, although she wasn’t sure how much her family would receive.
“The cost of everything is increasing,” said Jarrett, 46. “But the salary is not going up.”
For children under age 6, the credit amount has increased from a maximum of $ 2,000 per child in 2020 to $ 3,600 this year. For ages 6 to 16, it’s up to $ 3,000 compared to $ 2,000 previously. The law also made 17-year-olds eligible for the $ 3,000 credit. Credits and eligibility are phased out for people belonging to higher income groups.
In another exchange, half of the annual amounts arebeing paid in advance and spread over the last six months of 2021. This means that families have started receiving payments of up to $ 300 per month per child for children under 6 and $ 250 for those aged 6 to 17. The IRS bases the advance payments on information on a household’s 2020 tax return, if available, or on the 2019 tax returns. Filers would claim the remaining credit amount when submitting the 2021 tax returns. next year.
Some beneficiaries may eventually have to repay part of the advance payments if they exceed the amount of credit to which they are entitled. This would happen when filing 2021 tax returns next year.
In fact, some taxpayers might want to opt out of receiving advance payments if they know, for example, that they will not be eligible based on their expected income for 2021, noted Mark Luscombe, senior federal tax analyst at Wolters Kluwers. . Taxpayers can opt out through the Child Tax Credit Update Portal on irs.gov. But the opt-out deadlines are set around the start of each month, so it’s too late to cancel July payments.
Social security payment reminder
The CARES law enacted last year to provide coronavirus relief allowed self-employed workers to delay payment of social security tax due in 2020 by two years. Specifically, individuals were allowed to defer 50% of l social security tax on the income of self-employed workers from March 27, 2020 to December 31, 2020.
Apparently concerned that many people might have difficulty making these payments, the IRS recently recalled that half of any deferred Social Security tax is due on December 31, 2021. The other half will be due on December 31. 2022.
Self-employed people can make these payments anytime on or before due dates and in a variety of ways, including by check or credit card. To ensure that they are applied correctly, payments should be recorded as “deferred social security tax” and made separately from other tax payments.
Contact the reporter at firstname.lastname@example.org.
Support local journalism. Subscribe to azcentral.com today.