2020 Tax Return preparation and Covid-19 Relief Package
Dear our clients,
In the spring of 2021, we have endeavored the Winter Storm and have the fast-track passing of the new covid-19 relief package. With many changes and considerations, it's time to prepare for your tax returns for the year 2020.
The $1.9 trillion COVID-19 relief package budget was approved by the Senate last Saturday, and let me share the highlights and also assist you with how the conditions arising from the covid-19 relief will be reflected in the 2020 tax return. Furthermore, it’s important to understand how the new relief in 2021 can be applied to the 2021 tax return.
COVID-19 relief package Highlights:
Stimulus Check $1400
IRS will send an additional $1400 of Stimulus Check (Economic Impact Payment), which was paid $1200 in April last year and $600 each in January this year.
Taxpayers with annual income up to $75,000 ($150,000 for a married joint-filing) will receive the full amount. The amount is decreased for exceeding the guideline income and eventually zeros out when the income exceeds $80,000 for a single and $160,000 for married joint-filing.
In addition to state unemployment benefits, the federal government's payment for an additional $300 per week is extended from March 14 to September 6, 2021.
The unemployment benefits you received in 2020 are issued through Form 1099-G. The total amount was taxable, however, now up to $10,200 per person is tax-free.
Those who have not yet completed their 2020 tax return are advised to wait until the tax return form is finalized/reissued to reflect the tax-free portion.
If you have already completed your 2020 tax return, you can apply for additional tax reduction through an amendment.
Your child's tax credit will increase.
In the past filings, the tax credit was $2,000/child for children aged 0-17.
For the year 2021, the credit will be increased to $3600 for children aged 0-6 and $3,000 for children aged 6-17.
Student Loan Forgiveness
Any student loan amount reduced due to Covid-19 is recognized as a non-taxable income.
“Recovery Rebate Credit”
Stimulus Check is a pre-paid tax credit added to the 2020 tax return. Therefore, those who qualify in 2020 but did not receive the payment or received less than qualified can apply the difference as a tax credit called “Recovery Rebate Credit” through their 2020 tax return.
The following taxpayers are eligible: 1) Those whose income in 2020 is lower than that in 2018/2019 tax return. 2) Previous dependent child is now reported as an independent taxpayer. 3) Those who changed their ITIN number to SSN during 2020, or 4) who converted from Non-Resident to Resident on the tax return.
Additional Helpful Information:
Due to Covid-19, the tax criteria for Retirement Distribution have been eased, and the limit for deductions from Charitable Contributions has been increased. Self-Employment Tax (Social Security & Medicare) can be deferred for the period after Covid-19 occurred in March last year. Deadlines Extended for Businesses and Residents in Texas
As Texas was classified as a federal disaster zone due to the recent Winter Storm, the deadline for 2020 tax returns is extended to June 15th.
The extension also applies to state corporate tax reporting, and the TX Franchise tax filing deadline is now June 15th, 2021.
In addition to the above, there are many comprehensive changes that are yet to be reflected by the IRS, and the changes to the 2020 tax return have not been confirmed. Our accounting firm is consistently researching and keeping up with the changes and the updated guidelines.
If you have any specific questions that apply to you and your businesses, please contact our office.
Certified Public Accountant