As stimulus checks and new child tax credit amounts can only be determined via tax returns, let's understand a little more about what the extended deadline and tax processes really mean.
The IRS extended the tax return deadline to May 17 but actually started processing 2020 returns on February 12, so as you can see, the sooner you file the sooner you may get your extra payments.
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"The IRS is encouraging taxpayers to file electronically to avoid delays in processing paper returns, as the agency is still digging out from a large paper correspondence backlog from last year," says Garrett Watson, senior policy analyst at the Tax Foundation, to CNET.
This year the IRS has adjusted individual income tax brackets for inflation and with the new eligibility requirements for last year's CARES Act, it changed a lot of rules and regulations with regard to student loans, 401(k) plans and many more.
"This year's tax season will be unusually busy for both taxpayers and the IRS, as many aspects of the coronavirus relief measures passed in 2020 will affect our tax returns," says Garrett Watson, a senior policy analyst at the Tax Foundation.
So, let's explore everything you may need to know with regards to your 2020 and 2021 taxes:
Income tax brackets
The IRS adjusted its income tax brackets due to inflation, so for 2020 the standard deduction is 12,400 dollars for single filers compared to 12,200 dollars in the previous year, and 24,800 dollars for married couples filing jointly in comparison to 24,400 in the previous year. Find out more on the IRS tax inflation adjustments page.
Employers of graduates can now contribute towards an employee's student loan debt, paying up to 5,250 dollars as long as payments are made between March 27, 2002 until December 2, 2020. This contribution is tax free for both the employer as well as the former student. Find out more on the IRS Exclusion for Certain Employer Payments of Student Loans page.
The amount of your third stimulus check is based on your 2019 or 2020 taxes, whichever the IRS has on file at the time determines your payment, but the good news is that the check/s do not count as taxable income. However, if you already have received a stimulus check with a lower amount than you anticipated then you may need to wait until the IRS reviews your tax return and you may be eligible for a plus-up payment.
The stimulus check will also not count as income for determining whether or not you're in need of benefit programmes or government assistance.
Moreover, if you were eligible for some of the first or second stimulus checks and it never arrived or you gained a new dependant this year, you can claim your missing money on your 2020 tax returns as a Recovery Rebate Credit. This credit can lower the amount that you owe in federal income tax or increase the amount you may receive as a tax refund. The IRS's Recovery Rebate Credit Worksheet can help you determine whether you're missing a payment and, if so, for how much
IRAs and retirement plans
The CARES Act waived required minimum distributions for IRAs and retirement plans for 2020. Since those RMDs count as taxable income, if you didn't take the distribution, it's like getting a tax break. Find out more on the IRS Coronavirus Relief for Retirement Plans and IRAs page.
Child tax credit
The new child tax credit will range anywhere between 500 dollars to 3,600 dollars per child, depending on their age. The new stimulus bill increases the amount families can claim to 3,600 dollars per child under age 6 and 3,000 dollars for children over age 6. Half will be paid through the tax refund and the other half will be paid monthly from July to December.
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This year Congress passed an increased allowance for medical expenses that are tax deductible as part of the December stimulus bill. Instead of capping expenses that exceed 10 percent of your adjusted gross income, as was originally planned, you can now deduct medical expenses that exceed 7.5 percent of your AGI. Find out more on the IRS Medical and Dental Expenses page.