2020 Tax Changes You Should Know About – OWNSKIN

Let’s be honest: taxes are always incredibly confusing, and with all of the changes that happened in 2020, taxes ended up getting just a little more complicated. To try and provide relief to many struggling Americans, tax changes were rolled out. We may not have really understood how these changes would affect our year-end return (2021 felt so far away). But now that April 15th is just around the corner, it’s time to figure out how some of these tax changes will affect your return. Here are five changes you need to know about: 

About that stimulus check you received…

If you received a stimulus check during 2020, here’s a detail that didn’t get a lot of attention during the roll-out: it was an advanced tax credit for 2020. It’s not taxable income, so you won’t have to pay taxes on it. A tax credit is when you get a dollar for dollar reduction in the amount of taxes you have to pay. A $100 tax credit = $100 knocked off your tax bill at the end of the year. 

So this tax credit was a big deal. Doing it as an advanced tax credit meant that money got into people’s bank accounts earlier in the year, instead of having to wait until when they filed their taxes in 2021. 

Now that tax time is rolling around, your tax return will be the place where you reconcile the tax credit you received to the amount you actually should have received. Because this was an advanced tax credit, the IRS used previous tax returns to estimate who would qualify for the credit. If your 2019 tax return showed that your income was too high to qualify for a stimulus payment, you wouldn’t have been mailed a check earlier this year. But if your taxable income decreased in 2020 and you now fall below the income threshold and you should have qualified for a stimulus payment, you’ll get the tax credit when you file your 2020 tax return. 

As a reminder, you’d receive the full stimulus payment if your income was less than $75,000 (for a single filer) or $150,000 for people married and filing jointly. 

Giving back might mean a tax break

Charitable contributions used to be an easy way to reduce your tax bill. Donate to charity, write it off at the end of the year! Then in 2018, the Tax Cuts and Jobs Act changed the rules so that only people who itemized deductions could claim a charitable contribution tax break. A lot of people ended up not getting to deduct any amounts that they donated to charity.

For 2020—and 2020 only—people who don’t itemize deductions can still write off up to $300 of cash contributions made. So if you made donations to charity this year, dust off those receipts and get a tax break for them.

Don’t forget about all of your taxable income

This isn’t really a tax change, but more a tax reminder. Unemployment income is taxable income. So if you received unemployment payments this year, expect to receive Form 1099-G, which will include all of the unemployment benefits you received in 2021. You’ll need to include that amount on your tax return. 

To pay taxes on this income throughout the year, you have two options: have 10% automatically withheld from your paycheck, or make estimated tax payments quarterly. If you didn’t do either of those, when you file your tax return, you may find that you have a tax bill for unemployment income that you received. 

If your employer helps pay your student loans (lucky!), listen up

If you are fortunate enough to have an employer who helps make your student loan payments, your luck got a little better. Usually, those employer payments are considered taxable income. But for 2020, they’re not taxed (up to $5,250). That means your employer can pay up to $5,250 of your student loans and you won’t owe the government a dime in related taxes. 

Early retirement withdrawals won’t hurt as much

If you took a draw from your retirement account to pay your bills this year, it doesn’t work like it normally does. In other years, you would be charged a 10% penalty fee and owe income taxes on the amount withdrawn at the end of the year. 

This year, the 10% penalty is waived, but you will still need to pay taxes on the income. The amount you withdraw will be spread out over the next three years of tax returns. For example, if you withdrew $9,000, you’ll include $3,000 in taxable income for the next three years. You can find more information on this withdrawal from the Consumer Finance Protection Bureau.

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