As you prepare your tax paperwork, here are some things to expect.
Tax deadline: The IRS says it expects more than 150 million tax returns to be filed this year. Although the start of the tax season was delayed until Feb. 12, so far there is no indication that the April 15 deadline will be extended as it was last year.
Stimulus payments: Many people who received economic-impact payments fear that this will mean more taxes. So, first of all: No, any stimulus money you received will not be subject to income taxes.
Any number of glitches may have resulted in your not getting a stimulus payment or the full amount you were due. Or, perhaps you didn’t register with the IRS.gov non-filers tool last year. You may still be eligible for relief (if you meet the eligibility requirement). You’ll be able to claim the funds through the “Recovery Rebate Credit” when you file your 2020 return. Tax preparation companies, volunteers and tax software should walk you through questions to determine your eligibility.
The stimulus money was paid out in two separate rounds. The payment for the second stimulus relief was automatic, so there’s nothing you can do to make sure you get it before you file your return. If you moved or changed your bank account information, you’ll just have to claim the stimulus credit of up to $600 when you file your return. This is also the case for the first payment.
Because payments are being issued based on information IRS already has on file, you will not be able to add new routing or account information. If your payment can’t be delivered for any reason and is returned to the IRS, you’ll need to claim the Recovery Rebate Credit when you file your return, the IRS says.
The fastest way to get your money is to file electronically and elect to have your refund delivered by direct deposit.
If you received the full amount for both the first and second round of stimulus payments, you don’t have to do anything — including putting any information about the payments on your 2020 tax return.
Stimulus eligibility for recent college students/dependent adults: There has been a lot of misunderstanding around this, including by some tax professionals I consulted. Here’s what the IRS has told me:
One of the rules for getting a payment is that you can’t be claimed as a dependent. But it’s not just a matter of if you were claimed but “can” you be claimed by your parents. The question turns on whether the person is self-supporting. It’s possible this may be the case for a recent college graduate. But if you are providing more than half of the support for someone 17 and older, that person cannot get a stimulus payment under either of the stimulus relief legislation signed into law last year. There are provisions for payments of $500 in the first round and $600 in the second round for eligible children under 17, up to a total of $1,100 for a dependent child.
Free file: The IRS has a partnership with the Free File Alliance, a group of tax software providers who have agreed to make their federal tax-return products available at no cost to taxpayers whose adjusted gross income was $72,000 or less in 2020. In some cases, you may also be able to have your state return filed free, as well. To ensure you are directed to this free service (and not to paid products by the same companies), go to irs.gov/freefile.
Although the start of the tax season is delayed, taxpayers can begin filing returns now through IRS Free File partners, who are accepting tax filings in advance. The returns will be held and then transmitted to the IRS starting Feb. 12.
If you earn too much to qualify for the Free File program, you can still file your returns at no cost via Free File Fillable Forms, which is an electronic version of IRS paper forms. This service will only be available starting Feb. 12.
Identity theft: Some taxpayers have found themselves fighting for their own refunds after identity thieves have filed fraudulent tax returns using stolen personal information. Taxpayers whose identities were used to file fraudulent returns generally are eligible for a special Identity Protection PIN (IP PIN), which is a six-digit code known only to them and the IRS. Starting this year, the IRS said anyone who wants to lock their tax account can request an IP PIN, provided that they can pass a “rigorous identity verification process,” the agency said. If interested, go to IRS.gov/IPPIN.
“Electronic returns that do not contain the correct IP PIN will be rejected, and paper returns will go through additional scrutiny for fraud,” said IRS Commissioner Chuck Rettig in a statement about the expansion.
There’s a lot going on this tax season. I’d suggest you bookmark irs.gov and visit the site often for updates on what is likely to be a season with a lot of issues.