The 2020 tax filing season is upon us and there are some important details for families to be aware of, including potential tax credits and filing requirements related to pandemic financial assistance.
The filing window opened Feb. 12 and, unless you file for an extension, the deadline to submit tax returns is April 15.
Know the difference
Subtract tax credits from the amount of tax you owe. There are two types of tax credits:
A nonrefundable tax credit means you get a refund only up to the amount you owe. For instance, the tax credit is worth $1,000 but you only owe $600. You don’t get to keep the remaining $400.
A refundable tax credit means you get a refund, even if it’s more than what you owe. For example, you owe $500 but the tax credit is worth $1,000. You receive the remaining $500 as a tax refund.
Tax deductions are subtracted from your income before you figure out the amount of tax you owe.
The stimulus checks that many Americans received in response to the pandemic are not taxable. However, unemployment benefits included in the CARES Act must be claimed on this year’s tax return. That means anyone who received the $600 unemployment benefits through the CARES Act must pay taxes on that income.
The standard deduction was increased in new tax legislation passed last year. For people filing as single, the new standard deduction is $12,400. For married filing jointly, $24,800 is the new standard deduction. The standard deduction for married filing separately is $12,400.
The California Earned Income Tax Credit is available to workers who earned less than $30,000 in 2020. For the first time, non-resident immigrants with an Individual Tax Identification Number may qualify for the credit, as well as those who file using a Social Security Number. Tax filers with children under age 6 may also qualify for the Young Child Tax Credit and receive up to an additional $1,000. The CalEITC and Young Child Tax Credits are available in addition to the federal EITC. The average combined tax refund is $3,000, but families could receive up to $8,053.
As a result of the national emergency declared by the president in March, taxpayers may claim losses related to COVID-19. According to KPMG, a professional tax organization, there must be sufficient evidence directly associated the claimed losses with the pandemic and documentation of that impact must be provided with the tax return.
Many people transitioned to working from home due to the pandemic but, unless you are self-employed, you cannot claim deductions related to a home office. In the past, tax payers could claim expenses related to a home office but that provision ended in 2017.
Free tax filing
For independent tax filing programs like TurboTax, the maximum income to be eligible for free tax filing is $36,000. Residents of Los Angeles County who made less than $55,000 in 2020 are eligible for free IRS-certified tax preparation services. San Bernardino County residents can contact Neighborhood Partnership Housing for free tax filing assistance. Certified tax professionals can determine if you qualify for certain tax credits.
Avoid scams by filing your taxes early and, if you file electronically, using a secure server and WIFI connection. The IRS typically initiates contact with tax payers through regular mail delivered by the United State Postal Service and will never call you to ask for payment over the phone. Read more about avoiding tax scams by clicking here.