Monthly News: March 2021

The Internal Revenue Service reminds first-time filers and those who usually don’t have a federal filing requirement to consider filing a 2020 tax return. They may be eligible to claim the Recovery Rebate Credit if they didn’t receive the amount of stimulus that they were eligible for. Individuals who were eligible but did not receive the first or second Economic Impact Payment or received less than the full amounts may be eligible to claim the Recovery Rebate Credit and must file a 2020 federal tax return, even if they do not usually file a tax return.

Thanks to new legislation more people will qualify for the Earned Income Tax Credit (EITC) and some people will receive a larger credit.

A new provision under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, allows you to elect to use your 2019 earned income to figure your 2020 Earned Income Tax Credit if your 2019 earned income is more than your 2020 earned income.

If your earned income was too low in 2020, using your 2019 earned income could get you a larger credit.

The IRS Interactive Tax Assistant is a tool that provides answers to several tax-law questions specific to a taxpayer’s individual circumstances. You can find the tool at IRS.gov

The Internal Revenue Service provided guidance for employers claiming the employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), for calendar quarters in 2020.

For 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts. The credit is equal to 50 percent of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020. The maximum credit available for each employee is $5,000 in 2020.

A significant change for 2020 made by the Relief Act permits eligible employers that received a Paycheck Protection Program (PPP) loan to claim the employee retention credit, although the same wages cannot be counted both for seeking forgiveness of the PPP loan and calculating the employee retention credit. Notice 2021-20 explains when and how employers that received a PPP loan can claim the employee retention credit for 2020.

The Internal Revenue Service reminds first-time filers and those who usually don’t have a federal filing requirement to consider filing a 2020 tax return. They may be eligible to claim the Recovery Rebate Credit, a new refundable credit, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act.

Most individuals eligible for the Recovery Rebate Credit have already received the full amount in two rounds of payments, known as Economic Impact Payments. All legally permitted first and second Economic Impact Payments have been issued.

Individuals who were eligible but did not receive the first or second Economic Impact Payment or received less than the full amounts may be eligible to claim the Recovery Rebate Credit and must file a 2020 federal tax return, even if they do not usually file a tax return. The IRS offers free options to prepare and file a return.

Taxpayers who received the full amounts of both Economic Impact Payments won’t claim the Recovery Rebate Credit or include any information about the payments on their 2020 tax return because the IRS already issued their Recovery Rebate Credit in advance as Economic Impact Payments.

Didn’t get an Economic Impact Payment or got less than the full amount?
People who didn’t get an Economic Impact Payment or got less than the full amounts may be eligible to claim the Recovery Rebate Credit and must file a 2020 tax return, even if they don’t usually file.

The first Economic Impact Payment was based on an individual’s 2019 tax year information or 2018 if the 2019 tax return information was not available. The second Economic Impact Payment was based on an individual’s 2019 tax year information. The Recovery Rebate Credit is similar except that the eligibility and the amount are based on 2020 information on the tax return. The Recovery Rebate Credit is reduced by any Economic Impact Payments issued.

People who were not eligible for either or both of the Economic Impact Payments may still be eligible for the Recovery Rebate Credit since it’s based on their 2020 tax return information. Those with lower income in 2020 or who were claimed as a dependent on someone else’s tax return in 2018 or 2019, but who cannot be claimed as a dependent on someone else’s return in 2020, may now be eligible for the Recovery Rebate Credit.

People eligible to claim the Recovery Rebate Credit based on their 2020 tax information must file a 2020 federal tax return. For more information about the Recovery Rebate Credit, see Frequently Asked Questions at IRS.gov.

Filing a 2020 tax return
To avoid refund delays, file a complete and accurate tax return. The best way to file a complete and accurate 2020 tax return is to file electronically. The tax software will ask questions about income, credits, and deductions and help taxpayers figure their Recovery Rebate Credit. The Form 1040 and Form 1040-SR instructions include a worksheet that can also help.

Individuals will need to know the amount of their Economic Impact Payments to claim the Recovery Rebate Credit. Those who don’t have their Economic Impact Payment notices can view the amounts of their first and second Economic Impact Payments through their individual online account. For married filing joint individuals, each spouse will need to log into his or her own account.

The Recovery Rebate Credit will be included in any tax refund. It will not be issued separately. For those due a refund (which would include the Recovery Rebate Credit), combining electronic filing with direct deposit is the safest and fastest way to get their refund.