The coronavirus pandemic has caused significant challenges for individuals and their families. Since March 2020, many Americans have lost their jobs or faced other financial difficulties. Some have also moved to different cities or new areas of the country. Combined, these changes can have implications when it comes to taxes.
If you’re someone who has undergone one or more of these shifts, knowing the details can ensure that you file your taxes correctly and get all the stimulus money that you deserve. Here are a few of the key factors to consider, and what you need to know before you file.
Claiming the Recovery Rebate Credit
Stimulus payments have been critical for many Americans during the pandemic, but you may have some money left on the table due to life changes that took place in 2020. The recovery rebate credit is available for you to solve this and potentially earn some stimulus backpay.
To get taxpayers their stimulus money fast, the IRS used prior-year tax information to determine how much you should receive. For many, that calculation was accurate.
For some, the stimulus payments based on prior-year earnings didn’t account for life changes that could have increased the total amount received—like, having a baby, making less money in 2020, or not being claimed as a dependent for the first time.
The Ins and Outs of Claiming Unemployment
With unemployment reaching record highs in 2020, many Americans were forced to claim unemployment benefits. If this is something you experienced, it’s important to know that unemployment income is taxable on your federal return. It may also be taxable at the state level (depending on your state). If you’re still receiving unemployment or claiming it for the first time in 2021, you can opt-in for withholding on your payments to avoid a penalty in 2022.
When filing your taxes, you’ll need to report that income as part of your annual earnings and include a copy of Form 1099-G which you’ll receive in the mail. To get a sense of how that income will affect your return, you can use a tax calculator to estimate your refund.
The Tax Implications of Mortgage Suspension
As a result of the rise in unemployment, the CARES Act suspended mortgage payments for individuals who lost their jobs over the past year. This provided borrowers with the ability to delay payments for up to 180 days without the accrual of fees or penalties.
If this is something that has affected you directly, understanding the impact on real estate taxes and deductions is crucial. While mortgage payments have been suspended, property taxes could still be due and these will need to be paid to avoid a penalty.
If you typically itemize your deductions, it’s also important to note that you’ll have a smaller deduction this year since the interest you paid was less than it would have been in a typical tax year.
The New Rules Surrounding Charitable Giving
Another important tax consideration is charitable giving. While donations are considered an allowable deduction with an itemized return, they are typically not deductible for those taking the standard deduction.
However, the CARES Act also contains a provision for these types of donations and a deduction of up to $300 is allowed for cash gifts to charitable organizations. If you contributed to any organizations throughout the year, this could be a great way to lower your taxable income.
The COVID-19 pandemic has brought its fair share of challenges, but getting your maximum refund and stimulus money doesn’t have to be one of them. Whether you want to file online or work with a tax professional, H&R Block has you covered. They also have multiple filing options designed to meet your needs and fit your schedule.
To minimize costs, H&R Block is currently offering 35% off online tax filing, meaning you don’t have to spend more to ensure your taxes are done right.
If you’ve experienced some of the above life events and you’d prefer to work with a tax professional, you can do so either in-personal or virtually. With more than 10 years of experience on average, H&R Block’s tax pros can answer all of your questions and guarantee that your return is filed correctly so you get the refund you deserve.