The president is expected to sign a bill this week which will provide relief for the continued impact of COVID-19. The American Rescue Plan Act of 2021 extends unemployment benefits, provides funding for state and local governments, supports vaccine rollouts, expands the child tax credit, makes a portion of unemployment compensation nontaxable for certain filers, and gives many Americans an additional Economic Impact Payment.
There are a couple of items in the bill that will affect 2020 tax returns, including the tax waiver for unemployment compensation up to $10,200 for many taxpayers and elimination of repayment of the Advance Premium Tax Credit. As we learn more, we will keep you informed on updates.
The Internal Revenue Service today reminded taxpayers to choose a tax return preparer with care. Even though the vast majority of tax return preparers provide honest, quality service, some cause great harm through fraud, identity theft and other scams every year.
It’s very important to select the right tax professional. After all, people trust them with their most sensitive personal and financial information. No matter who prepares it, the accuracy of a tax return is ultimately the responsibility of the taxpayer.
More tips to consider:
• Look for a preparer who is available year-round.
• Inquire whether the tax return preparer has a professional credential (enrolled agent,
certified public accountant or attorney), belongs to a professional organization or
attends continuing education classes.
• Understand representation rules. Attorneys, CPAs and enrolled agents can represent any
client before the IRS in any situation
• Never sign a blank or incomplete return.
Taxpayers whose identities may have been used by thieves to steal unemployment benefits to file a tax return claiming only the income they actually received.
Some taxpayers applied for and received unemployment compensation from their state. By law, unemployment benefits are taxable.
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.
Taxpayers who receive an incorrect Form 1099-G should contact the issuing state agency to request a revised form. If they’re unable to get a timely, corrected form from states, they should still file an accurate tax return, reporting only the income they received. They should save whatever documentation they have regarding their attempts to receive a corrected form from their state agency.
Many of us have had some reasons to believe that it is taxable. And perhaps some are also swayed to think that it is taxable since NC DOR has a subtraction for it on D-440 Sch. S line 33. However, please consider the following information.
A “qualified disaster relief payment” is defined by section 139(b) to include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. Since the stated purpose of NC’s Extra Credit Grant program is “to help families with qualifying children in North Carolina by providing economic support to assist with virtual schooling and child-care costs during the COVID-19 pandemic,” it seems reasonable to conclude that it falls within the definition of a “qualified disaster relief payment” and would therefore be excluded from a taxpayer’s gross income.”
IRS quote under FAQ’s regarding income and deductions:
” … COVID-19 outbreak is a “qualified disaster” for purposes of section 139 of the Code ..
Section 139(c)(2) of the Code provides that for purposes of section 139 of the Code, the term “qualified disaster” includes a disaster determined by the President to warrant assistance by the Federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 -5207. The President has made such a disaster determination for all 50 states, the District of Columbia, and all U.S. Territories. A “qualified disaster relief payment” is defined by section 139(b) of the Code to include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.”
We feel that the above information is very important in helping you make an educated decision.
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.
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.
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.
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.
However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations.
The law changed in his area due to the Coronavirus Aid, Relief, and Economic Security Act.
The CARES Act also suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
Tax Exempt Organization Search- is a resource tool to find out if a specific charity qualifies as a charitable organization for income tax purposes.
The Internal Revenue Service, state tax agencies and the tax industry today warned of a new text scam created by thieves that trick people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment.
The IRS, states and industry, working together as the Security Summit, remind taxpayers that neither the IRS nor state agencies will ever text taxpayers asking for bank account information so that an EIP deposit may be made.
The scam text message states: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment …” The text includes a link to a fake phishing web address.
The IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards.
Federal beneficiaries who got their Economic Impact Payment but did not register to receive a $500 supplemental payment per qualifying child can still register before 3 p.m. Eastern November 21, 2020.
Those eligible include people with qualifying children who receive Social Security retirement, survivor or disability benefits, Supplemental Security Income (SSI), Railroad Retirement benefits and Veterans Affairs Compensation and Pension (C&P) and did not file a tax return in 20108 or 2019.