Tax time is always confusing, but doing your taxes during COVID can be a lot more complicated than normal. Fortunately, this year’s extended filing season means you have one more month to get your affairs in order. Before you start preparing (or having someone else prepare) your taxes, keep reading to learn about some of the key changes that could affect your return.
You have until May 17 to file your taxes – Like last year, the IRS extended the filing date, meaning you have until May 17 to file your individual tax return and pay any amounts owed. Missouri and Illinois have also extended their state deadlines to match the federal date. However, even though the deadline was extended, that doesn’t mean you should wait until May 17 to file. Filing your taxes early means receiving your refund earlier, giving yourself time to address any delays, and allowing yourself as much time as possible to save and budget for paying your tax bill.
You’ll receive any missed stimulus money with your tax return – If you qualified but did not receive money during at least one of the three Economic Impact Payment (stimulus check) rounds, you can claim the money owed to you as a recovery rebate credit. You can also claim any child credits you missed if your child was born between January 1 and December 31, 2020. Visit the IRS website to find out how much you’re owed.
There’s no tax penalty on retirement withdrawals – Thanks to the second COVID relief bill, retirement withdrawals up to $100,000 from 401(k), 403(b), IRA, 457(b), and employer pension plans will not be subject to the normal 10 percent tax penalty. In order to avoid the penalty, you must be a qualified individual using one of the previously mentioned retirement plans. Withdrawals will still be taxed as regular income, but you can split the income across up to three years. If you find yourself in this situation regarding your own taxes, be sure to consult a certified tax professional before submitting your return.
You may owe taxes on unemployment benefits – If you didn’t choose to have income taxes withheld from your unemployment check, there’s a good chance you will owe money when you file. The first $10,200 in benefits won’t be taxed thanks to March’s American Rescue Plan, but any amount above that will be taxed as income. Since the exclusion isn’t automatic, you’ll need to claim it on your tax return. Otherwise, you will be taxed for 2020 all unemployment benefits.
You can use your 2020 or 2019 income to claim the Earned Income Tax Credit – If you’re worried that unemployment payments, retirement withdrawals, or other non-work income will affect your tax refund this year, the IRS recently announced that people can use their 2019 income to claim the Earned Income Tax Credit (EITC) instead of relying on 2020 income. Your 2019 earned income must be more than your 2020 earned income in order to claim EITC. The same is true for the Additional Child Tax Credit. Like other years, you will still need to file taxes (even if you otherwise wouldn’t be required) and specifically claim the EITC in order to get the credit. Visit the IRS website to see if you qualify.
Don’t worry if this list has your head spinning. If your income is $66,000 or below, there are free tax prep services in St. Louis through Metro St. Louis Community Tax Prep and the St. Louis Tax Assistance Program. All volunteers are certified IRS tax preparers trained to help you properly submit returns. You can also file your taxes online through the IRS’ free file program. There you can use popular tax preparation apps like TurboTax and TaxSlayer for free if your income is $72,000 or below. For information on common tax terms and how to prepare for meeting with a tax preparer, watch our 2020 Tax Prep video.
Nay’Chelle Harris, Financial Coach