There are several changes this year when it comes to COVID-19 and your taxes, so we broke some down.
LITTLE ROCK, Ark. — Now that we’ve hit the month of February, we know what that means: tax season is here!
While many begin to start filing their taxes, before you turn in those forms, you might want to be aware of some changes.
Tax preparers said there are many different scenarios for different people, but we decided to break down the five things Arkansans need to know about the 2021 tax season.
Number one: If people lost their jobs in 2020, are those unemployment benefits counted as taxable income?
Mary Harris, with Jackson Hewitt Tax Service, said “yes, they absolutely are.”
“There’s a lot of misinformation about that. Some people think it’s all in the state, some people think it’s all in the federal, that is untrue. Both federal and state unemployment that you drew is going to be taxable on your tax return,” she said.
Number two is all about those stimulus checks.
Do they count as taxable income and what should people do if they haven’t received it?
Rocky Goodman, with Garland and Greenwood CPA’s and Advisors, said stimulus checks are being treated like a refundable tax credit.
“It’s not a taxable amount, so those who have received it there’s no need to worry on having to pay tax on that,” he said.
According to Harris, if you still haven’t received your check, you can apply for the credit on your tax return, but it may delay your return altogether.
Number three: It’s something that’s never been done before.
Harris said the IRS is allowing taxpayers to “look back” at their 2019 earned income, the money they got from their W-2, or that they earned self-employed income, and compare it to 2020.
“They’ll allow you to look back to 2019 to see if that would give you a better tax advantage than your 2020 earned income,” she said.
Number four: thanks to the CARES Act, if you’re a giver, you’ll be rewarded.
According to Goodman, this year there is a new “above the line” charitable contribution deduction that helps you write off up to $300 without having to itemize it.
Number five: There are some changes to the retirement plans that could impact your tax bill.
Goodman said if you took money out of, for example, your 401k, and you’re under the age of 59 and a half, you usually get hit with a 10% penalty.
He said more exceptions to that rule were added this year to take out that penalty if it was related to COVID-19.
“If you did have to take money out of a retirement plan because of that, they’re allowing you to pay that tax back over the course of the next three years,” he said.
Every expert said to expect some delays and to remember the way the IRS works, it is first in, first out, so get it done as soon as possible.
“Provide their documentation, tax documents and things of that nature, as soon as it becomes available and to also keep in mind that we are still in the midst of a global pandemic,” Jaye Gasaway with Garland and Greenwood CPA’s and Advisors, said.
The IRS has announced that the 2021 tax filing season will start on Feb. 12.
There are no signs yet of the IRS pushing back the due date, so for now, taxes are due by April 15.