With spring almost here and vaccines on the march, there is a lot to be excited about. But before most of us can enjoy either, we’ll most likely have to tackle another challenge that has been impacted by the pandemic: our tax returns.
After the overhaul of the tax system a couple of years ago, some things were much simpler. But like everything else, the pandemic has changed all that, at least temporarily.
To guide readers through the pitfalls and opportunities of this year’s tax changes, The Leaven talked to Beth Coleman, director of accounting for the Archdiocese of Kansas City in Kansas.
Q. Last year, the pandemic caused the Internal Revenue Service to push back the date tax returns were due. Is there any likelihood of that happening this year?
A. Presently, the due date is April 15, but with the passage of the American Rescue Plan of 2021 on March 11, there is a possibility that the IRS may extend the due date. The AICPA and the House Ways and Means Committee have requested the IRS to extend the date, so keep checking to see how the IRS has responded.
Q. Will the American Rescue Plan affect your 2020 tax return?
A. It could affect your 2020 return if you received unemployment income during 2020 and you had adjusted gross income of less than $150,000. The act will exempt the first $10,200 in unemployment benefits and it is retroactive to 2020. If your return has already been filed, you will need to amend it to get the benefit. If you have not filed yet, you might wait until the IRS has adjusted the tax forms so that you can receive this benefit.
Q. How will the American Rescue Plan affect families with children?
A. The child tax credit has been expanded for one year. In 2021, the credit will be $3,600 for children under age 6 and $3,000 for children age 6 through 17. Families could get advance payments on a monthly basis between July and December, which would represent half of the credit. The remaining credit can be claimed when they file their 2021 tax return. The expanded credit begins to phase out at adjusted gross incomes of $75,000 on single returns, $112,000 on head-of-household returns and $150,000 on joint returns.
Q. Many Americans have received a stimulus check (the Economic Impact Payment, or EIP) in tax year 2020. Do they need to report that on their tax returns?
A. The stimulus check you received will not be taxed.
Q. Others have not received theirs yet, though. How should they proceed?
A. If you were eligible to receive the stimulus checks but did not get them, you can receive a credit on your 2020 tax return.
Q. Will receiving the stimulus check affect other federal benefits someone might already receive, like unemployment or Social Security?
A. No, the stimulus check should not affect other federal benefits.
Q. There seems to have been a few small changes to the actual tax form since last year, some due to the pandemic. One of them will benefit many Catholics who support their parish financially. Could you explain?
A. There is a temporary tax law change to help charities. Taxpayers who take the standard deduction on their 2020 tax return can deduct up to $300 in charitable donations that are made by cash, check or credit card. Donations of noncash items — i.e., clothes and household items — do not qualify. In previous years you were only allowed to take a charitable donation deduction if you itemized your deductions.
Q. So what does a taxpayer now need to gather up to take to his/her tax preparer?
A. Along with your prior year’s tax return, social security numbers of yourself, spouse and dependents, and bank account and routing number for direct deposit of your refund you will need the following:
• W-2s – If you worked as an employee
• All 1095 forms – Health Insurance Statements
• Any 1099s you received:
— 1099NEC – if you worked as an independent contractor
— 1099R – if you received money from a pension, retirement plan, IRA or annuity
— 1099SSA – if you received Social Security
— 1099G – if you received unemployment compensation ($10,200 of this income is not taxable if your AGI is less than $150,000)
— 1099INT, 1099DIV, and 1099B for investment earnings
Many employers and investment companies have gone paperless which requires you to get these forms off their portals/websites.
For those with children in day care, bring the total amount paid and the provider’s name, address and their Social Security number or Federal ID number.
For those with college age children, obtain the 1098T in order to claim the Education Credits.
Teachers of K-12 can deduct up to $250 for out of pocket classroom or professional development expenses. In 2020, because of COVID-19, PPE expenses, including disinfectants and supplies, can also qualify for this deduction.
Those with student loans should obtain form 1098E from the lender.
Q. The CARES Act allowed people affected by the pandemic to withdraw up to $100,000 from their retirement accounts, including IRAs, 401(k)s, 403(b)s and others, in 2020. Will taxpayers be taxed on their withdrawals?
A. If you, your spouse or dependents have been adversely affected by COVID-19 and you made a withdrawal before the age of 59, you will not owe the early withdrawal penalty. There are several options on repaying it or taking it into income over the next three years and it can be complicated so I would suggest consulting with your tax preparer so that it is done correctly.
Q. Tons of people are now working from home that weren’t prior to the pandemic. Can they now write their home office off as a business expense?
A. If you are working from home and are an employee (receive a W-2), you cannot take a home office deduction.
If you are self-employed, you use the home office exclusively for business and it is your principal place of business, you can take a home office deduction.
Q. Many people have been laid off and have no extra money for tax preparation. Is there any help for them?
A. There are several places to go to find out if you are eligible for free tax filing and support:
• irs.gov — If you or your family have adjusted gross income of less than $72,000, you can use the IRS’s tool to find a brand-name tax software to prepare your tax return for free.
If you decide to use that software to prepare your state tax return, there is a charge for that service.
Kansas does have a free file service called KS WebFile that you can use to prepare your Kansas return if you are a Kansas resident or non-resident and have filed a Kansas income tax return in the last three years. Go online to: kansas.gov/webfile.
• myfreetaxes.com — United Way provides this website to assist people in filing federal and state returns and connects users to partner nonprofits who are part of the IRS Volunteer Income Tax Assistance (VITA) program.
• taxaide.aarpfoundation.org — AARP Foundation helps those over 50 with low to moderate incomes.
Q. Finally, apparently scammers took advantage of the pandemic to file fraudulent claims in the names of people whose identity they have stolen. What should people do if they receive a Form 1099-G that reflects unemployment earnings that is not accurate?
A. If you received a 1099G for unemployment you did not receive, you must report it to the state unemployment office that gave you the 1099G —not the IRS — so that a corrected form can be issued to you, including if the amount is $0. In Kansas, go online to: dol.ks.gov. Failure to get a corrected form could result in the IRS taxing you on this income even if you leave it off your return.
Coleman worked for 12 years as an auditor in public accounting before serving for the last 31 as director of accounting for the Archdiocese of Kansas City in Kansas. Coleman is also currently serving on the Audit Committee for the University of St. Mary in Leavenworth; she and her husband Mark belong to Prince of Peace Parish in Olathe.
