As 2020 finally comes to a close, taxpayers should take some time to understand these recent tax law changes in preparation for the 2021 tax filing season.
The Recovery Rebate Tax Credit
The Recovery Rebate Tax Credit is a tax credit authorized under the CARES Act for those who did not receive their full Economic Impact Payment (stimulus check) as an advanced payment. Like any other refundable tax credit, the Recovery Rebate Tax Credit will increase an individual's tax refund or lower the amount of taxes owed. Generally, you are eligible to claim the credit if you meet the following requirements:
You were a United States citizen or resident alien in 2020;
You cannot be claimed as a dependent of another taxpayer's 2021 return; and
You have a social security number that was issued before the due date of your 2020 tax return (including any applicable extensions).
In addition to all three of the requirements above, you must also meet one of the following requirements:
You did not receive an Economic Impact Payment (EIP) in 2020;
You filed as Single and your EIP payment was less than $1,200;
You filed as Married Filing Jointly for 2018 or 2019 and your EIP payment was less than $2,400; or
You did not receive $500 for each qualifying child.
The Refund Interest Payment
The IRS issued interest payments to certain taxpayers that timely filed a 2019 federal income tax return and received a refund. Most of the interest payments issued by the IRS were separate from a taxpayer's original tax refund. It is important to note that these interest payments ARE taxable and must be reported on your 2020 federal income tax return.
In January 2021, the IRS will send taxpayers a Form 1099-INT (Interest Income Form) to those who received an interest payment of at least $10.
New Charitable Deduction Allowance
All taxpayers may claim a charitable deduction of up to $300 for cash contributions made to qualifying organization in 2020, regardless of whether one takes the standard deduction or itemizes deductions. Qualified organizations are generally those with federal tax-exempt status, and can be found by using the IRS's Tax Exempt Organization Search tool located on MyTaxRights's Tax Tools page.
For those who do itemize deductions, there is no limit this year on the charitable deduction amount one can claim for cash contributions made to qualifying organizations. Note, though, this is a temporary measure implemented under the CARES Act to help struggling organizations survive the hardships imposed by COVID-19.
Other 2020 Tax Filing Reminders:
Taxpayers should not expect to receive any tax refunds by a certain date. Some tax returns may require additional review by the IRS, and processing returns may take longer than expected this year.
Refunds connected with returns claiming the Earned Income Tax Credit or Additional Child Tax Credit cannot legally be issued before the middle of February. This applies to a taxpayer's entire refund amount, not just the portion associated with the specific tax credit.
The fastest and most secure way to receive a refund is by electronically filing a return and consenting to direct deposit. Both options are available to taxpayers under the Free File program, a service that allows eligible taxpayers (those who made less than $69,000 in 2020) to self-prepare and e-file their tax returns for free using state-of-the-art tax preparation software. Taxpayers may also track the status of their refund by using the IRS's Where's My Refund tool located on MyTaxRights's Tax Tools page.
For more information, see the following resources:
About the Author
Lars Kroner is the Chief Operating Officer for MyTaxRights, LLC. As COO, Lars leads MTR's educational outreach initiatives that focus on teaching others how to self-prepare and file their taxes using free web-based tax preparation services. Lars earned his Master's in Business Administration from American University's Kogod School of Business and he is the Project Manager of Growth for a D.C.-based fitness company. He is also the co-founder of the Center for Advancement of Tax Equity, a 501(c)(3) nonprofit that sponsors tax education and outreach projects aimed at improving the quality of life and economic conditions for individuals from marginalized communities.