I mentioned last week the key provisions of the “American Rescue Plan,” while it was just proposed legislation.
Now that the House has passed it, there is more meat on those bones. I’ll run it all down for you once it’s been signed by the President, but the key provisions are what I indicated:
- An expansion of individual stimulus checks ($1,400 per person, with phaseouts starting with AGI of $75 K or $150 K for married filing jointly, and $1,400 per dependent)
- An increase in the Child Tax Credit
- An expansion of the Earned Income Tax Credit (and a few other related credits)
- Extension to September and increase in federal unemployment compensation (from $300 to $400/wk)
- Increase in the federal minimum wage to $15/hr (this provision looks unlikely to remain in the final bill from what I am seeing)
- Assistance to renters and small landlords
We’re tracking all of this during the height of tax season, which means that we are busy bees here at Hinckley Tax Service. Our phones are burning up, and our inboxes overflowing … but this is what we’ve been preparing for over many months.
We’re here for you:
https://hinckleytaxservice.com/%E2%80%8B/schedule-a-call/
I do have a little favor to ask … would you kindly leave us a review on Google?
Make us smile with a review on Google
Apparently that’s one of the primary ways that people are finding and evaluating businesses online these days — so a good word from ourCleveland friends would go a LONG way. Thank you!
And speaking of reviews, I’m going to review some of the key post-stimulus tax provisions (did you see what I did there?) that might have slipped through the cracks for YOUR tax professional (unless you used us, of course), and to ensure that you’re aware of what’s happening for your 2020 taxes…
Post-Stimulus Taxes for 2020
“For every minute you are angry you lose sixty seconds of happiness.” – Ralph Waldo Emerson
So much has happened already in 2021 that the CARES Act and many of the “new” tax and financial provisions we operated from in 2020 can seem like ancient history for Cleveland.
But not us … we’re knee deep in these details right now (while keeping an eye on all of the NEW new things happening in tax code land).
So, I thought it might be useful for me to quickly run down important things to keep in mind about 2020 taxes (LAST year’s taxes).
And yes … by doing so I surely run the risk of “empowering” my readers to take on this task on their own. And while my livelihood is based on doing this FOR my clients, I also have learned that the more I can educate, the better.
So here goes. (And this is NOT a comprehensive list, so you know.)
Tax Brackets
For tax year 2020, the standard deduction for single filers is $12,400 and $24,800 for married filing jointly. “Head of household” filers is $18,650.
In many cases, the standard deduction works great. But there are other things to consider this year, aside from simple deductions. For example …
Stimulus Payments
Both the first stimulus payment from the March CARES Act and the second stimulus payment from the December stimulus bill are non-taxable events. In other words, you should NOT owe tax from them. Further, they do NOT count as income for determining whether you’re eligible for government assistance or benefit payments.
Missed them somehow and were eligible? That’s when you claim the missing payments as a Recovery Rebate Credit on your 2020 tax return (we can help with that). That means that it will simply either increase the size of your total tax refund or lower the amount of taxes you owe.
If you don’t usually file tax returns because you are under the income threshold, but are owed the stimulus payment, you will need to file a 2020 return. (This is probably not applicable to most who are reading this.) It doesn’t mean that you’ll have to pay tax; it is just what you need to do in order to collect the stimulus payments.
2020 Charitable Donations
These can still be deducted as itemized deductions. In addition, though, you can also deduct up to $300 in donations even if you don’t itemize (i.e. you take the standard deduction).
Retirement Things
The CARES Act waived required minimum distributions from IRAs and retirement plans for 2020.
On top of this, early withdrawals taken in 2020 due to COV hardships will not be subject to the 10% early withdrawal penalty (if certain conditions are met).
In order to avoid the 10% penalty, the distributions must have been made to a qualified individual from an eligible retirement plan between Jan. 1, 2020, and Dec. 31, 2020, and must be $100,000 or less in aggregate.
A qualified individual is “anyone who has been diagnosed by a test approved by the CDC or has experienced adverse financial consequences due to being quarantined, furloughed, or laid off; having work hours or pay reduced; having been unable to work due to a lack of child care; having owned or operated a business that has been closed; having had a reduction in self-employment income; or having had a job offer rescinded or a start date delayed. An individual also qualifies if his or her spouse or a member of his or her direct household has experienced any of the above.”
Additionally, a qualified individual is not required to demonstrate a true need for the funds in order to take advantage of this provision. As long as an individual has experienced adverse financial consequences for any of the reasons above, an early distribution is allowed.
Student Loans
Employers can contribute up to $5,250 toward an employee’s student loan debt. It will be a deduction for the employer and tax free for the employee. But this can’t be “back dated” — the payment must go against the principal amount of the debt and have been made between March 27, 2020 and December 31, 2020.
Earned Income Tax Credit Changes
The earned income tax credit is a refundable tax credit (meaning you can get back more than you paid in for taxes – very nice!). It is designed to benefit people with lower incomes. However, you must have some “earned income” in order to qualify.
The 2020 relief bills indicated that you can use either your 2019 *or* 2020 earned income to calculate your earned income tax credit amount for your 2020 tax return.
Child Tax Credit
Again, I mentioned in my opening that there might be some additions to this, but as it currently stands, the expanded child tax credit allows you to claim up to $2,000 per child. Some of that will also be refundable. Like the earned income tax credit, it is designed to help lower income working families. And, as before, you can use your 2019 earnings *or* your 2020 earnings to determine your eligibility for this credit.
FSA Accounts
The limit for tax-free contributions has been increased to $2,750 for 2020.
Medical Expenses
Qualified medical expenses over the amount of 7.5% of adjusted gross income are deductible as itemized deductions. The threshold was lowered to 7.5% from 10.0%.
Work From Home Expenses for Employees
If you work from home as an employee you still cannot take a deduction for your home office. However, if you have a business or are self-employed, you can take that deduction.
This is just the briefest of rundowns, but I do hope this helps.
To your family’s financial and emotional peace…
And a reminder: this is how you can get to us (aside from sending us an email):
https://hinckleytaxservice.com/%E2%80%8B/schedule-a-call/
Warmly,
Rich Rhodes