COVID-19 tax changes: $600 unemployment checks may mean less of a refund
The IRS just started acknowledging tax returns Friday, Feb. 12, and isn’t expected to extend the filing date past April 15 as the agency did last year.
The result is the shortest tax filing season ever at a time when taxpayers in South Mississippi may have the biggest changes to their income and expenses because of the coronavirus.
The good news is the two stimulus checks Americans received aren’t taxable.
The surprise comes for those who may never have been laid off before, or those who worked remotely. The unemployment they collected is taxable, and the business expense employees incurred working at home isn’t deductible.
People are so disappointed when they come in to have their taxes done and find out the unemployment benefits are taxable with the IRS, said Barbara Pierce, general manager of the Jackson Hewitt franchise in South Mississippi.
“People are getting less of a refund even though they have the same income as last year,” she said.
For some taxpayers in South Mississippi who were laid off during the pandemic, the $600 bonus unemployment payment from the federal government pushed their income above what they typically earn on the job and put them into a higher tax bracket.
The amount withheld may not cover what is owed. Pierce said that even if they elected to have taxes withheld from their federal payment, they also owe state taxes on the unemployment they collected.
IRS lets taxpayers pick a year
For those who file an Earned Income Tax Credit and Child Tax Credit, the IRS has instituted a one-time “look back” rule that allows taxpayers to use either their 2019 or 2020 income to get the largest benefit.
“These are considered the two most valuable tax credits for low- and moderate-income working families,” according to Associated Press.
“That is a huge thing,” Pierce said. “People are getting thousands more income because of this look back.”
Home office expenses
During the coronavirus shutdown in South Mississippi that began in March, “So many people had to go home for work,” said Jamie Dent, a certified professional accountant in Ocean Springs.
Employees who bought a desk or paid for faster internet service to work at home during the coronavirus no longer can claim unreimbursed business expenses on their taxes, he said.
The home office deduction can only be taken by a person who is self-employed, he said, and they must file self employment tax.
“If you run a business that was hit by the pandemic, you may find your estimated tax payments were either overpaid or underpaid compared to normal,” Dent said in a newsletter to his clients. “Now that 2020 is in the books, run a quick projection to ensure you are not surprised with an unexpected tax bill when you file your tax return.”
A good surprise
Those who didn’t receive one or both of their stimulus payments or got the wrong amount can correct that by filing a tax return.
“If any of your stimulus payments were for less than what you should have received, you can get money for the difference as a tax credit when you file your 2020 tax return,” Dent said.
IRS also added a temporary deduction to help charities during the coronavirus, which allows taxpayers to deduct up to $300 for charitable donations even if they don’t itemize their deductions.
Confused? Need help doing taxes?
“It’s just a real different year this year,” Pierce said, and she encourages those who had an unusual situation or are worried about tax fraud to get help with their tax return.
The biggest issue people are having is getting their unemployment information to file their taxes, she said. Form 1099-G for unemployment benefits is available, and tax preparers can help download the information online for those who don’t have it, she said.
Taxpayers with no dependents who file now can start to see their tax refund 10 to 20 days after they file, Pierce said. For those early filers with dependents, it will be be closer to first or middle of March, she said.
Jackson Hewitt, along with other tax services, provides an advance on refunds for taxpayers who don’t want to wait for their money. “It costs them absolutely nothing to do that,” she said, but is available at Jackson Hewitt only through the end of February.
The IRS provides free tax preparation service to qualifying seniors and low-income individuals. For a location, go to irs.treasury.gov/freetaxprep/ or call 800-906-9887.
This story was originally published February 16, 2021 at 5:50 AM.
