The Internal Revenue Service is girding for the official start of tax season Friday as taxpayers and preparers deal with tax breaks related to COVID-19 and questions about stimulus payments.
The IRS recently updated its annual Publication 17 guide to preparing individual tax returns with the latest information on all the tax changes in 2020, including updates to important forms in multiple languages, the Earned Income Tax Credit, IRS Free File, the taxability of unemployment compensation and the Recovery Rebate Credit. The service also revamped the format of
The IRS pushed back the traditional late January start to tax season as it continues to deal with distributing the latest round of Economic Impact Payments and implementing tax regulations stemming from the CARES Act and other relief packages passed by Congress last year. That means tax professionals will need to contend with a more compressed tax season than usual, along with uncertainty about what tax breaks will be in the stimulus legislation currently being shaped in Congress that could affect last year’s taxes.
“We will start accepting tax year 2020, individual tax returns, tomorrow,” said IRS Wage and Investment Division Commissioner Ken Corbin during a press conference Thursday. “That's Friday, Feb. 12. And we are ready this year. We expect to process more than 160 million individual tax returns. We know taxpayers rely on us for the information and help they may need to meet their tax obligation.”
Not all tax preparers think the IRS is quite so ready yet. “This is the latest start in my career,” said Knox Wimberly, an Enrolled Agent and CEO of Taxaroo, a tax practice management software company. “And we have some real ambiguity still from Congress in terms of some retroactive tax bills that are going to come into play.”
On the other hand, many preparers weren’t thrilled with last year’s protracted tax season that lasted until July 15 after the IRS extended the filing deadline due to the pandemic. They may welcome a shorter time period, although many clients may want to file for an extension until some of the lingering uncertainties are resolved.
Filing suggestions
The IRS delayed the start of tax season in order to focus on distributing the second round of Economic Impact Payments authorized by Congress last December to help taxpayers cope with the economic fallout from the pandemic.
“Our focus as the pandemic continues is to help taxpayers and the tax industry in a way that ensures the safety of our employees and the safety of the taxpayers we serve,” said Corbin. “There are a couple of important steps that they can take which will greatly improve their experience this year and help them get their refunds faster. The first step is to gather your documents. Make sure you have everything before filing your return or visiting your preparer.”
For taxpayers who prefer to get help from a professional, he advised them to check a directory on the IRS’s website of preparers who have credentials recognized by the IRS or have completed an IRS continuing education program.
“We have several options on IRS.gov, not just for finding a tax preparer," Corbin said. "One new source is the
The IRS expects to issue most refunds within 21 days, but some refunds may take longer, Corbin acknowledged. He advises taxpayers to check the status of their refund by visiting the
However, tax returns that claim refundable tax credits like the Earned Income Tax Credit and the Additional Child Tax Credit are required by law to undergo additional compliance checks to make sure the tax refunds aren’t being claimed by identity thieves and tax scammers. Corbin said early filers can expect to find information about those returns posted on the Where’s My Refund page by Feb. 22, and the refunds will be deposited in taxpayers’ accounts by the first week of March if they opted for direct deposit and there are no other issues with the return.
Many taxpayers who lost their jobs in 2020 will need to include unemployment compensation on their tax returns, some of them for the first time, while other taxpayers who may have worked in the gig economy for the first time last year as a result of losing their full-time jobs will also need to enter the amount they earned on their tax return.
“That income is taxable and must be reported,” warned Corbin. “As the pandemic continues, we remain focused on supporting the federal government’s efforts to help those experiencing financial changes and challenges. I'm proud of the work we've done to issue more than 160 million of the first round of Economic Impact Payments while simultaneously managing an extended 2020 filing season. As we prepared for this filing season, we’ve issued over 140 million of the second payments, many as early as two days after the legislation was signed Dec. 27.”
It’s possible that Congress will make the unemployment payments in 2020 and 2021 exempt from taxes this year, but that hasn’t been decided yet. “We still have some provisions that are likely to be retroactive to come from Congress, particularly around unemployment,” said Wimberly of Taxaroo. “With the ambiguity around unemployment, I’m seeing more professionals who are curious about whether or not they should hold files that have unemployment. Are we going to end up filing a whole bunch of amendments? Will the IRS use their math authority to automatically correct? None of this is known. Some practitioners are suggesting that we should encourage our clients to hold off if they have unemployment. In the under 25 percent tax bracket, $10,200 is a significant amount of tax difference that could be on a return.”
The Child Tax Credit may be increased in the new stimulus package under the Biden administration’s proposals. “It looks like that will probably impact 2021 more than 2020, but we’re going to see several retroactive tax provisions there,” said Wimberly.
The various stimulus packages, including the Families First Coronavirus Response Act, the CARES Act, the Paycheck Protection Program Flexibility Act, and the Consolidated Appropriations Act that passed in December, have created lots of extra work for tax professionals to make sure their clients were able to take advantage of them. “All of these laws contained a lot of tax provisions,” said Wimberly. “Professionals are a little bit overwhelmed, particularly with some of the retroactive activity.”
Taxpayers who didn’t receive an Economic Impact Payment last year or who didn’t receive the full amount to which they were entitled can claim it as a Recovery Rebate Credit on Line 30 of their 1040 or 1040-SR this year. There is a Recovery Rebate Credit Worksheet available to help them figure the correct amount to claim. “The credit will be paid as part of your refund,” said Corbin. Those who received the full amount of the payment don’t need to include it on their tax return, he added.
Account access
The IRS has introduced a new way for taxpayers to access their tax account information with the IRS online, which can help with figuring the Recovery Rebate Credit.
“To be eligible for the RRC, you'll need the amount of any Economic Impact Payments you received in order to calculate it using the RRC worksheet or your tax preparation software,” said David Alito, deputy commissioner of the IRS Wage and Investment Division, during the IRS press conference. “This year, you can log on to your federal tax account information on IRS.gov and view the amounts of the Economic Impact Payments you might have received. While in your account, you can also view any amounts owed, payment history, installment agreement information, tax records and key tax return information for the most recent tax returns as originally filed. You can visit
To prevent identity theft, the IRS has now extended its Identity Protection Personal Identification Number program to any taxpayer who wants the protection. “Taxpayers nationwide can now opt in to the IP PIN program through the online tool,” said Alito. “The Identity Protection PIN, which we call IP PIN, is a six-digit number known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer’s Social Security number.
He also highlighted changes that affect two important tax credits: Taxpayers may use their 2019 earned income figure to figure their Earned Income Tax Credit if they earned more income in 2019 than in 2020, and the same is true for the Additional Child Tax Credit. "This could increase the credit for someone who might have lost their job or worked reduced hours because of the pandemic," Alito said. "These returns can be filed electronically, and tax software will help taxpayers calculate the credit using either the 2020 or the 2019 income.”
Because of income changes in 2020, people may qualify for the EITC when they didn't previously, he noted. “We have another tool to help these people," said Alito. "Taxpayers earning $56,844 or less can see if they qualify using the EITC Assistant tool on
The EITC Assistant is available in both English and Spanish, and helps users determine if they are eligible, if their children meet the qualifying child rules, and it estimates the amount of the EITC they may get, he noted. The IRS has also been greatly expanding the multilingual assistance available to taxpayers. "If they don't fall into 20 languages when taxpayers call for help, we are giving them access to over-the-phone interpreter services in more than 350 languages," said Alito.
Other tax law changes he pointed to include IRA contributions. “For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs,” said Alito. “You can make tax deductible IRA contributions past age 70 and a half. For charitable contribution deductions without itemizing, taxpayers who choose the standard deduction may be eligible to take a charitable deduction or cash contributions up to $300 to qualifying charities in 2020 without having to itemize. Teachers can include unreimbursed expenses for personal protective equipment, disinfectant and other supplies used for the prevention of the spread of COVID-19 in the classroom as part of their $250 deduction for classroom expenses.”
He advises taxpayers to "start with IRS.gov and the many resources we have available there to help taxpayers for a complete and accurate tax return."
