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People should be on the lookout for identity theft involving unemployment benefits

Is the NC Extra Credit Grant payment ($335-) taxable? (PDF)

Taxpayers should beware of ghost preparers

 As people begin to file their 2020 tax returns, taxpayers are reminded to avoid unethical ghost tax return preparers.

A ghost preparer is someone who doesn’t sign tax returns they prepare. Unscrupulous ghost preparers often print the return and have the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost will prepare but refuse to digitally sign as the paid preparer.

Ghost tax return preparers may also:

  • Require payment in cash only and not provide a receipt.
    • Invent income to qualify their clients for tax credits.
    • Claim fake deductions to boost the size of the refund.
    • Direct refunds into their bank account, not the taxpayer’s account.

 

As required by law, all first and second Economic Impact Payments issued; eligible people can claim Recovery Rebate Credit

The IRS announced today that, as required by law, all legally permitted first and second round of Economic Impact Payments have been issued and the IRS now turns its full attention to the 2021 filing season.

Most people who are eligible for the Recovery Rebate Credit have already received it, in advance, in these two rounds of Economic Impact Payments. If individuals didn’t receive a payment – or if they didn’t receive the full amounts – they may be eligible to claim the Recovery Rebate Credit and must file a 2020 tax return. Eligibility for and the amount of the Recovery Rebate Credit are based on 2020 tax year information while the Economic Impact Payments were based on 2019 tax year information. For the first Economic Impact Payment, a 2018 return may have been used if the 2019 was not filed or processed.

What taxpayers need to know about claiming the credit for other dependents

Taxpayers with dependents who don’t qualify for the child tax credit may be able to claim the credit for other dependents.

The maximum credit amount is $500 for each dependent who meets certain conditions. These include:

  • Dependents who are age 17 or older.
  • Dependents who have individual taxpayer identification numbers.
  • Dependent parents or other qualifying relatives supported by the taxpayer.
  • Dependents living with the taxpayer who aren’t related to the taxpayer.

The credit begins to phase out when the taxpayer’s income is more than $200,000. This phase out begins for married couples filing a joint tax return at $400,000.

A taxpayer can claim this credit if:

  • They claim the person as a dependent on the taxpayer’s return.
  • They cannot use the dependent to claim the child tax credit or additional child tax credit.
  • The dependent is a U.S. citizen, national or resident alien.

Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. They can use the IRS Interactive Tax Assistant, Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?, to help determine if they are eligible to claim the credit.

Guidance to taxpayers on identity theft involving unemployment benefits

The Internal Revenue Service today urged taxpayers who receive Forms 1099-G for unemployment benefits they did not actually get because of identity theft to contact their appropriate state agency for a corrected form.

States issue Forms 1099-G to the taxpayer and to the IRS to report what taxable income, such as refunds or unemployment benefits, were issued by state agencies.

Some taxpayers who faced unemployment or reduced work hours applied for and received unemployment compensation from their state. Under federal law, unemployment benefits are taxable income.

Scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made as a result of these fraudulent claims went to the identity thieves, and the individuals whose names and personal information were taken did not receive any of the payments.

Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they received. A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid being hit with an unexpected federal tax bill for unreported income.

Key filing season dates

There are several important dates taxpayers should keep in mind for this year’s filing season:

  • Feb.12. IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.
  • Feb. 22. Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as a PATH Act returns.
  • First week of March. Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their returns.
  • April 15. Deadline for filing 2020 tax returns.
  • 15. Deadline to file for those requesting an extension on their 2020 tax returns.

New things taxpayers should consider as you get ready to file taxes in 2021

New things taxpayers should consider as you get ready to file taxes in 2021

Here are some new key things people should consider when filing their 2020 tax return:
1. Recovery rebate credit: If you did not receive Economic Impact Payment in 2020

2. Single and received less than $1200

3. Married, filing jointly for 2018 or 2019 and their payment was less than $2400

4. They did not receive $500 for each qualifying child

Refund interest payment: People who received a federal tax refund in 2020 may have been paid interest. Most interest payments were received separately from tax refunds. Interest payments are taxable. In January 2021, the IRS will send a form 1099-INT, Interest Income to anyone who received at least $10 interest.
New charitable deduction allowance: New this year taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 for cash contributions made to a qualifying organization.
Other refund-related reminders- Taxpayer’s should not rely on receiving a refund by a certain date. Some tax returns may require additional review and processing may take longer.
Refunds for taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with the credit.

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