Breaking the Code: Tax Season Updates
By: Meera Bhanushali
We wanted to keep you up-to-date on our current expectations for this tax season as well as new policies from President Biden’s administration. At the height of the pandemic last spring, the IRS extended the 2019 tax season filing deadline to July 15th, 2020, giving taxpayers three extra months to file and pay Federal tax. Many states followed suit. As of now, we expect that the deadline will not be extended. Until any guidance is released from the IRS, please assume that the 2020 tax filing deadline remains April 15th, 2021.
Recovery Rebate Credit / Economic Impact Payment
President Biden has issued an executive order asking the Treasury Department to re-evaluate the delivery structure for stimulus checks. This will ensure that all Americans who are entitled to the payments receive them if they have not yet. An estimated 8 million eligible Americans did not receive the first $1,200 stimulus checks authorized through the CARES Act. Those same people may have also been left out of the $600 checks that were issued in December.
The Treasury Department has said that they will help rectify this by creating online tools to claim payments as well as establishing outreach efforts to let impacted individuals know they may qualify for the money. The Treasury Department plans to add simple options for individuals who have not filed tax returns, including those who do not have internet access or who may not speak English. The IRS is urging those who may be missing payments to file for a recovery rebate credit.
If you received an economic impact payment (EIP), the IRS will be sending out two notices: Notice 1444 for the first round of EIPs in Spring 2020 and Notice 1444-B for the second round of EIPs in December 2020 / January 2021. If you’ve received these notices, please let us know and provide a copy of the notice for our records. We have also added a question on your tax organizer to document the amount of the payment. Only individuals eligible to claim the Recovery Rebate Credit will need to file this information.
Unemployment Benefits
Unlike stimulus payments, unemployment benefits are taxable at the Federal and State level. Individuals who received unemployment compensation last year should expect to receive a 1099-G to file with their tax returns. A new bill, currently in Congress, may extend certain unemployment benefits during 2021. We will keep you informed if this is signed into law and what tax effects it may have.
Interest from IRS Taxable
Last year, the IRS had closed between March and August 2020, creating a severe backlog in their services. For this reason, the processing of tax returns and issuing of refunds was quite behind typical years. If taxpayers received a refund on their 2019 tax returns, they may have also received interest income on the refund amount. This interest income is taxable and will need to be reported on federal income tax returns. Individuals who received interest of $10 or more should receive a form 1099-INT from the IRS. This is also relevant at the state-level for interest on tax refunds.
Non-Employee Compensation
The IRS has introduced a new Form 1099-NEC for tax year 2020, specifically for reporting non-employee compensation for freelancers and contractors. This income is currently defined as payments on a contract basis to complete a project or task for individuals not on payroll. These payments were previously reported on a 1099-MISC which is now used for miscellaneous, rental, or royalty income.
As mentioned previously in this article, we expect further legislation and executive orders in the coming weeks and months. We will be following these updates and will provide information as we see changes to tax law or impacts to our clients’ financial situations.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.