Regardless of your employment status, profession, or location in the U.S., it’s likely that COVID-19 has financially impacted you in one way or another. The definite hit to our economy has proven more than damaging for millions of people, and for some, the changes have forced amendments to how we view our current state and the future.
We’ve rounded up the top five tax changes that occurred in the year 2020, along with clarifying how they might affect the tax return you file in the coming year.
1. New and Expanded unemployment benefits
Unemployment benefits and how to report them on a return — are significant concerns for millions of people in 2021. According to the IRS, “Unemployment reimbursement is taxable and must be announced on a 2020 federal income tax return. Liable to tax benefits include any of the special unemployment reimbursement authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed this spring which provide Americans with new and expanded unemployment benefits if they are out of work for reasons related to the pandemic.”
2. Student loan fortitude
As the collective average of student loan debt in the U.S. climbs and continues the temporary relief offered by the government this year has proven extremely helpful for those who have lost their jobs due to this pandemic. The U.S. Secretary of Education administered direction to the office of Federal Student Aid in the spring of the year 2020 to:
- Stop collection on student loans in default
- Temporarily suspend student loan fee
- Set interest rates to 0% for sixty days
In August of 2020, however, the U.S. president agreed to continue these measures until December 31, 2020. While it is usually recommended that student loan borrowers continue to make payments they can, the status of this type of grit may change yet again in the coming months.
Borrowers should be aware that the regular student loan interest rate they see each year will likely be lower if they ceased their payments throughout the year in 2020. It’s true even if you continue to pay your student loan since interest is not arising for the time being.
3. Stimulus payments
By the end of August in 2020, the IRS had paid out more than $269 billion in stimulus checks to reduce the financial consequences imposed by the COVID-19 pandemic. These payments (also known as EIP or Economic Impact Payments) were central to the Coronavirus Aid, Relief, and Economic Security Act.
Many taxpayers ponder if they have to report their stimulus checks on their next income tax return — especially how it might appear. The IRS says: “No, the Stimulus Payment is not included in your Adjusted Gross Income (ACI). Therefore, you will not include the Stimulus Payment in your taxable income on your Federal income tax return or pay tax on your Stimulus Payment. It will not reduce your refund amount or increase the amount you owed when you filed your federal income tax return in 2020.”
“A Stimulus Payment will also not affect your income to determine your eligibility for benefits programs or federal government assistance.”
4. Self-employed Paycheck Protection Program
The PPP or Paycheck Protection Program for small businesses was expanded in late April, with an additional amount of $310 billion in funding. The deadline to apply for a PPP or Paycheck Protection Program Loan expired on 8 August 2020, but could be extended again if another relief bill is signed into law.
Small business owners with 500 or fewer employees, sole proprietorships, independent contractors, and self-employed individuals are eligible for this program. Also keep in mind that:
- Sole proprietorships will need to give in a Schedule C from their tax return to be filed or filed showing the net profit from the sole proprietorship.
- Independent contractors will also need to submit Form 1099-MISC along with their Schedule C form.
- Self-employed individuals will need to give payroll tax filings reported to the IRS.
The maximum amount of money your business can get from an SBA-approved lender is your average payroll cost in the year 2019, multiplied by 2.5, up to a maximum of $10 million. Your Paycheck Protection Program loan will be fully forgiven if you use the funds for interest on mortgages, rent, utilities, and payroll costs.
Loans have an interest rate of 1% and a two-year maturity rate (although loans issued after June 5, 2020, have a five-year maturity rate). You don’t have to make loan payments until either your forgiveness application is processed or ten months after your covered period ends. No personal guarantees or collateral are needed, and neither the government nor the lenders will charge small businesses any charges.
5. Elimination of the 10% withdrawal penalty on retirement accounts
While withdrawing funds from your retirement account are generally seen as the last stop, many people have found that it is their only choice in the face of COVID-19-related financial sufferings. Due to the CARES Act, those who would generally be penalized for premature removals from an IRA, 401(k), or 403(b) account have been able to find some short-term relief — all without the 10% penalty on retirement accounts (for the handling of up to $100,000).
One important note:
Interest is still rising during this period, and the waiver only applies to borrowing that occurred during 2020.
UBOS is up to date with all the latest tax law policies and can help you submit your correct information to the IRS. Start filing your taxes today. If you need some extra help, connect with a tax expert using the UBOS site and get the best advice on tax when you need it.
At UBOS, our experts are always available to guide you with anything related to tax planning, tax strategies, and more. Do contact us today at ubos. pro to begin your consultation and learn more about how we can help you!