Regardless of your profession, employment status, or location in the U.S., it’s likely that you’ve been financially impacted by COVID-19 in one way or another. The undeniable hit to our economy has proven more than detrimental for millions, and for some, the changes have forced revisions to how we view our current state and the future.
We’ve rounded up the top seven tax changes that occurred in 2020, along with explanations as to how they might affect the return you file in 2021.
1. Expanded unemployment benefits
Unemployment benefits — and how to report them on a tax return — are a major concern for millions this year. According to the IRS, “unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.”
2. Student loan forbearance
As the cumulative average of student loan debt in the United States climbs and persists, the temporary relief offered this year has proven immensely helpful for those who have lost employment due to COVID-19. The U.S. Secretary of Education administered direction to the office of Federal Student Aid in March of 2020 to:
Stop collection on loans in default Temporarily suspend student loan payments Set interest rates to 0% for 60 days
In August of 2020, however, the president agreed to continue these measures until December 31, 2020. While it is generally recommended that student loan borrowers continue to make payments they are able, the status of this type of forbearance may change yet again in the coming months.
Borrowers should be aware that the normal student loan interest deduction they see each year will likely be lower if they have paused their payments throughout 2020. That’s true even you continue to pay your student loans since interest is not accruing for the time being.
3. Stimulus payments
By the end of August 2020, the IRS had paid out more than $269 billion in stimulus checks in an effort to mitigate the financial consequences imposed by COVID-19. These payments (also known as Economic Impact Payments, or EIP) were a primary focus of the CARES Act.
Many taxpayers wonder if they have to report their stimulus checks on their next tax return — especially how it might appear. The IRS says: “No, the Payment is not includible in your gross income. Therefore, you will not include the Payment in your taxable income on your Federal income tax return or pay income tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return.”
“A Payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.”
4. Self-employed PPP
The Paycheck Protection Program (PPP) was expanded in late April, with an additional $310 billion in funding. The deadline to apply for a Paycheck Protection Program Loan expired on Aug. 8, 2020 but could be extended again if another relief bill is signed into law.
Small businesses with 500 or fewer employees, sole proprietorships, independent contractors and self-employed individuals are all eligible for the program. Note that:
Sole proprietorships will need to submit a Schedule C from theirContinue reading