Last year, Americans got a bit of a breather from their annual tax bill, as the Internal Revenue Service pushed back the filing deadline by three months owing to the pandemic. This year, we’re getting another automatic extension, but it’s not quite as generous.
The recently shifted filing deadline is just adding to the remnant confusion after a tumultuous 2020. Between a surge in people working from home raising deduction questions, to the tax status of stimulus checks, small-business loans, and other forms of financial assistance, this tax season could be overwhelming for those who are already trying not to collapse under the daily stresses of life.
Take a breath. The news isn’t all bad. You can get free help putting your taxes together and an extension if you won’t be able to finish in time, despite the extended deadline. And you can even take steps to get a refund next year.
Before you dive headfirst into your receipts, we’ve put together answers to some of the most frequently asked questions for the 2020 tax season.
When can I file taxes in 2021?
Immediately. The Internal Revenue Service began accepting and processing tax returns for the 2020 tax year on Feb 12. That was a lot later than last year—nearly two and a half weeks later, in fact—as the IRS needed time to program and test its systems after the tax law changes passed in December as part of the second round of stimulus checks. Without that testing, there could have been a delay in the turnaround time on refunds.
The start of tax season is one of two peak times for the IRS, as people with relatively simple tax filings and those expecting big refunds often file as soon as possible. All totaled, over 150 million individual tax returns are expected to be filed this year.
When are my 2020 taxes due?
You’ve now got until May 17 to file your taxes, a roughly one month extension from the usual deadline.
Not ready when the deadline comes around? You can file for an extension before that date. Special rules apply to people serving in the Armed Forces who are in a combat zone or contingency operation, or have been hospitalized owing to an injury sustained in such an area. Those individuals have 180 days after they leave the area to file and pay taxes.
What are the tax brackets for 2020–2021?
After the changes of the past few years, even accountants are a little confused, so it’s not a bad idea to see if your bracket has changed. It will, however, depend in part on how you file.
What’s the standard deduction this year?
The standard deduction for most taxpayers actually increased in 2020, owing to inflation.
I worked from home for most of 2020. Can I claim a home office expense?
Probably not. Home office deductions are reserved for self-employed individuals. So, if your company sent you home for the majority of last year, you won’t be able to write off your spare bedroom or any of your utilities.
If, however, you work for yourself—and your income is in the form of 1099 statements instead of a W-2—you are able to write off the percentage of your home that you dedicate exclusively to work.
Do my stimulus checks count as taxable income?
The government sent out checks of $1,200 and $600 to millions of Americans in 2020 as the pandemic shut down most of the country. The good news is those IRS payments do not count as taxable income. The bad news? They are being treated like a refundable tax credit, so they’re similar to an advance on money you would have received as part of your refund.
Do I have to pay taxes on my unemployment benefits?
As unemployment rates soared during the early days of the pandemic, millions of people received unemployment benefits to help them get by. You might have to pay taxes on that money, but the recently passed American Rescue Plan makes it a lot more unlikely.
The bill, signed into law by President Joe Biden on March 11, made the first $10,200 of unemployment income tax-free for people with adjusted gross income of less than $150,000 in 2020. (The break is $20,400 for two workers in a married couple filing taxes jointly.)
If you had already filed your taxes before that date and paid taxes on unemployment, the IRS is working on a fix that will save people the effort of filing an amended tax return and still refund them what they paid for unemployment benefits.
I had to withdraw money from 401(k) or IRA. Will I have to pay taxes on that?
The CARES Act let people under 59½ withdraw up to $100,000 from their retirement plans without penalty last year. If you were one of those, yes, you will have to pay taxes on the money, but the news isn’t all bad. If you put the funds back into your account within three years, you can get a refund on the taxes you’ve paid.
Is it worth itemizing charitable deductions this year?
Charitable donations, for a while, seemed like a major headache when it came to reducing your tax liability after the sweeping tax law changes of 2018. The CARES Act, though, makes them worth considering once more. The legislation allows you to deduct up to 100% of your adjusted gross income, though you will need to itemize the deductions.
If you’re taking a standard deduction, you can write off up to $300 in cash deductions.
Should I file early this year?
If you made less money in 2020 than you did in 2019, it’s a good idea to file, regardless of whether you owe taxes or not. Filing with a lower amount could help with stimulus checks, whether they’re past ones that are still owed to you or future checks that have not yet been approved.
How much do you have to make to file taxes?
It really comes down to your filing status and age.
People who are single and under the age of 65 who make $12,400 per year or more will need to file a return. If you’re 65 or older, the minimum amount jumps to $14,050.
For married people under 65 filing jointly, the threshold is $24,800. If you’re both over 65, that jumps to $27,400. If one spouse is younger than 65 and one is older, it’s $26,100.
Married and filing separately? The threshold is a paltry $5 for all ages.
Heads of household who haven’t yet celebrated their 65th birthday and make more than $18,650 will need to file. That jumps to $20,300 if they’re over 65.
Finally, widows and widowers under the age of 65 with a dependent child who make over $24,800 will need to file a return. For widows and widowers older than 65, $26,100 is the line in the sand.
Is there a free tax filing system?
IRS Free File is a program that works with brand-name online tax providers, including TurboTax and H&R Block. You’ll need to have made $72,000 or less to use the system, which is now open for the 2021 tax filing season.
How do I file for an income tax extension?
It’s actually not too hard to file for an extension. The easiest way is electronically requesting one via Free File, which will extend your filing date until Oct. 15. There are a couple things to know, though.
First, you’ll need to estimate your tax liability, even if you haven’t calculated it precisely. And you’ll have to pay any owed taxes by the regular deadline.
If that doesn’t work, you can get an automatic six-month extension by using IRS Form 4868, which will also require you to estimate your tax liability based on the data available to you. The difference is, you won’t have to make a payment immediately. You will, however, owe interest on your tax bill if you end up owing money.
If you’re planning to file for an extension, don’t drag your feet. In 2018, the online service went offline owing, in part, to a flood of people who had waited until the last moment.
When will I get my refund from the IRS?
Ah, the critical question! The IRS estimates people who file as soon as tax season opens will get their refunds by the first week of March. The organization is hoping to issue them as quickly as possible in the pandemic to help people whose jobs were impacted last year. (It’s also strongly encouraging people to file with direct deposit, rather than waiting for a physical check.)
The IRS says more than nine out of every 10 refunds are issued within three weeks of the day the return is filed. The best place to track where things stand is with the Where’s My Refund? tool, which updates the status of tax refunds daily.
What’s the fastest way to receive my refund?
Step 1: E-file your taxes. That gets the information into the IRS system a lot faster than paper filings. Also, if you were eligible for an economic impact payment but didn’t receive it (or didn’t receive the full amount) you’ll have to file a tax return to claim the recovery rebate credit, even if you aren’t normally required to file.
Step 2: Make sure you’ve signed up for direct deposit, as the IRS says that can significantly speed up your refund. It also adds more flexibility. Your refund can be split into up to three separate accounts, including individual retirement accounts.
What common tax mistakes should I look out for?
Small errors can have big repercussions. And little things can do everything from delay your refund to put you at higher risk of an audit. Here are the most common errors, according to tax officials.
- Missing or inaccurate Social Security numbers
- Misspelled names
- Filing status errors
- Math mistakes
- Errors in figuring tax credits or deductions
- Incorrect bank account numbers
- Unsigned forms
- Filing with an expired Individual Taxpayer Identification Number (ITIN)
What happens if I file my taxes late?
If you miss the April 15 deadline, you could incur two kinds of fees and penalties on top of any taxes you might owe—one for filing late and another for paying late. If you file your return more than 60 days late, you’re likely looking at a minimum penalty of $210 (unless you owe less than that—in which case the penalty is 100% of the unpaid tax). Otherwise, the penalty can be as much as 5% of the unpaid tax each month until you pay, up to a maximum of 25%.
Late payment penalties are generally 0.5% of the unpaid tax per month, though that can build to as much as 25%. That amount can be cut considerably if you work out a payment agreement with the IRS.
Of course, if you file for an extension, these penalties do not apply. If you can show reasonable cause for not filing, you’ll avoid them as well. And if you historically have filed on time, you might qualify for the First Time Penalty Abatement program, which will help you avoid any fees.
What are my odds of being audited by the IRS?
That depends. Are you a higher-income individual or a small business? If so, you might want to be sure your records are in order.
Taxpayers with incomes of $10 million or more had substantially higher audit rates than every other income category between 2010 and 2015 (the last year with final audit rates). And the IRS is expected to increase its audits of small businesses by 50% this year.
How can I get a bigger refund next year?
The IRS’s Tax Withholding Estimator calculator will help you target a specific refund amount and help you best prepare for it through adjustment withholdings. It’s a terrific tool for people who don’t expect major fluctuations in their income throughout the year.
Note that your income tax withholding isn’t based on your marital status and withholding allowances anymore. Instead, it’s now based on your expected filing status and standard deduction. You can also have itemized deductions, the child tax credit, and other tax benefits reflected in your withholding.
Ok, I’ve filed. Are there any 2021 Tax Day freebies I can enjoy?
Traditionally, scores of businesses use tax day as a chance to run promotions to lure people in. But 2021, like last year, is a bit different. The number of companies that are offering freebies this year is down significantly, as they try to recover from the downswing in business brought on by the pandemic.
There are a few out there, though… Here are a few places to swing by after you’ve filed for that extension or dropped your returns in the mail (and we’ll continue to add to this list as we learn or more):
Great American Cookies – Get a free original Chocolate Chip Cookie on May 17. Proof of filing is not required.
Marble Slab Creamery – Buy one Regular or Best Value Ice Cream and get another for free. Southwest Airlines – File your taxes using TurboTax by May 17 and the carrier will deposit 1,000 Rapid Rewards bonus points into your account.
