Please take a moment to read through the list below. Do any of those changes impact your situation either for 2020 or 2021? Maybe you are not sure? Did you already file for 2020 and may or may not have taken advantage of those changes, especially bullet points 2 and 3?
Summary of tax changes, those effected, and what tax year:
- 2020: Deadline to file and pay 2020 taxes moved to May 17, 2021 for 1040 filers only.
- 2020: Up to $10,200 of Unemployment Compensation can be excluded from taxable income.
- 2020: Premium Tax Credit repayment is repealed for all taxpayers in 2020—if you received a Form 1095-A this is for you.
- 2020 & 2021: Another round of Economic Impact Payments—How do you get your payment?
- 2021: Child Tax Credit increase for 2021, children 17 years or younger, advance payment of the credit in 2021.
- 2021: Child and Dependent Care Credit increase for 2021.
- 2021: Earned Income Tax Credit expanded for 2021.
- 2021-2025: Student loans forgiven not subject to cancelled debt income.
The American Rescue Plan of 2021 is the most recent Act signed into law (March 11, 2021) of the COVID Relief packages from our federal government.
- May 17, 2021 is the date to file and pay your 2020 taxes.
- First Quarter 2021 estimates are still due on April 15.
- No change for entity income tax returns.
Tax returns with modified Adjusted Gross Income (AGI) below $150,000 can exclude up to $10,200 of UI from taxable income—‘modified’ because the $150K does not include UI. Prospect Tax clients: You can be confident this will be done on your return.
- This will lower your AGI which may qualify you for additional deductions and credits.
- The $150,000 AGI is per tax return whether it is a Single, Joint, or Separate return.
- If you are married and have more than $150K in income, you may want to file Married-Separate in 2020.
- Already filed?
- The IRS said they will automatically calculate your overpayment and fix it for you. Please do not amend!
- However, the IRS may only take into consideration the $10,200 reduction in taxable income and not the impact this could have on credits, other deductions, etc.
- Our suggestion is that you at least prepare a ‘mock’ amended return to see if your reduction in tax liability matches what the IRS automatically changed.
- If you are married filing joint, already filed and had AGI over $150K, you will need to file a superseding return by May 17 to take advantage of the $150,000 threshold.
Premium Tax Credit
This credit is only associated with taxpayers who received health insurance via a government exchange and received a Form 1095-A. The way this works is that the government gives you an advance on a tax credit to help lower your monthly health insurance premium. The credit is reconciled and based on your income—too much income and you may need to repay a portion of the credit on your 2020 tax return.
This new provision is specifically for taxpayers who must repay a portion of the credit on their 2020 tax return.
This is a tax credit repayment repeal—a dollar for dollar increase in your tax liability, gone. If you had to repay $1200 of your advanced credit, you will get an additional refund of $1200.
What to do?
- If you have not filed yet, make sure you are not repaying any of the Premium Tax Credit. We will ensure the provision is applied to your tax return.
- If you’ve already filed:
- First, double check that you had to repay part of the credit. Ask us.
- If you did, amend you Form 1040.
The New Economic Impact Payment ($1400)
No need to read this section if you have already received the EIP#3. For the rest of you there are a few things to take into consideration.
- $1,400 for adult dependents too.
- AGI phaseouts: $75-$80K for Single and Married-Filing Separate; $112K-$120K for Head of Household; $150K-$160K for joint filers.
- A well-timed IRA contribution could pay off in a big way.
- The IRS is looking at 2019 if you have not filed 2020.
- Do not file 2020 if you are in those phaseout ranges until your EIP#3 comes.
- File 2020 ASAP if your 2020 income is lower than 2019, considering the phaseouts. Do not wait!
- The IRS will issue EIP#3 90 days after 2020 is filed if this is the case, but there is a cutoff.
We are preparing all our tax returns with this information in mind. We have already advised many of our clients to make IRA contributions, hold off on filing, etc. to maximize their EIP#3.