Filing Your Taxes This Year Is Key To Getting The Best Covid Relief

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You could get more money back than you think, or at least reduce your tax bill. A number of Covid relief provisions can be claimed in their entirety only through your tax return. Some tax credit rules have become more advantageous due to the pandemic. And you might find yourself eligible for some tax breaks for the first time thanks to Covid.

The IRS will start accepting returns on February 12, and the filing deadline is April 15, unless you request an automatic extension.
But by filing on time, you’ll avoid being charged a late filing penalty and possibly a default penalty if you still owe the IRS taxes.

Claim the most stimulus you are eligible for

If you earned less than $ 75,000 as a single person, $ 112,500 as a head of household, or $ 150,000 as a married couple in 2020 and have not already received Covid relief federal government payments, filing your federal income tax return will be the best way to get the total amount of the two economic impact payments you are eligible for.
The IRS has sent two payments so far – the first was up to $ 1,200 per adult, and the second up to $ 600, with even more money for those with dependent children.

But anyone who did not file a federal income tax return in 2019 or whose 2019 income was above the 2020 income eligibility thresholds for stimulus payments may not have received what is owed to them. This is because the IRS, for the sake of speed, dispatched payments based on the 2019 tax information it had as well as the information it had for Social Security recipients.

The same situation may have affected parents who divorced in 2020, said Elaine Maag, a leading research association at the Urban-Brookings Tax Policy Center.

It’s possible that the IRS sent the full family stimulus payment to the non-custodial parent.

In this case, Maag noted, the IRS will not require the non-custodial ex-spouses to repay the money they mistakenly obtained. And he will still send a duplicate payment to the parent who can prove their custodial status last year.

But to get the payment owed to you, you must claim the refundable recovery discount credit. The credit will be given for the same amount as the stimulus payment for which you are eligible. Refundable credits reduce your tax liability dollar for dollar. If one credit exceeds your tax liability, the rest will be sent to you as a refund.

You may be eligible for an earned income tax credit

Given the financial hardship of 2020 for so many people, you may be entitled to yet another tax break – the refund Earned Income Tax Credit – intended to reward the work of low- and middle-income tax filers.

To be eligible for the EITC, your income must be below certain thresholds depending on the number of children you have. For example, for the 2020 tax year, your adjusted gross income cannot be more than $ 21,210 if you are a married couple with no children, but can reach $ 56,844 if you have three children. (There are other factors that go into determining EITC eligibility detailed in IRS Summary.)

The credit is worth up to $ 6,660 for married couples with children and up to $ 538 for single tax filers without children.

Additionally, the EITC rules have been changed to provide more Covid relief to those who qualify. You can choose to base your EITC on your 2019 or 2020 income, whichever would be most beneficial for you. you.
This same retrospective provision will also apply if you are eligible the refundable tax credit for children.

“Either way, if you earned less in 2020 than in 2019, you can calculate your credits based on 2019 earnings or 2020 earnings. You can choose a different year for each credit,” Maag said.

Small business owners will benefit from supercharged deductions

Small business owners who paid for business expenses using money from a canceled Paycheck Protection Program loan can still claim those expenses on their federal income tax return as if they were. paid out of their income.

And the loan forgiven will be treated as tax exempt for the small business owner.

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