8 Changes that May Affect Your 2020 Tax Return | United Way of Metropolitan Dallas

8 Changes that May Affect Your 2020 Tax Return

COVID-19 has changed life as we know it—even tax season—but we’re here to help.

For many North Texans, 2020 was a year of big life changes. Many people lost their jobs and signed up for unemployment benefits. Some found themselves short on funds and had to seek out debt forgiveness or rental assistance. As we move through tax season, it’s important to remember that these and other stressful events may have an impact on your 2020 tax return.

At United Way of Metropolitan Dallas, we recognize that financial stability is an important part of a stable, successful life. Along with education and health, it’s one of the building blocks of opportunity. We develop and support programs that provide free tax preparation services to North Texans that can help families get the highest tax return possible and put more money into savings—which today is more important than ever.

As you get ready to file your taxes, be sure to keep these eight important points in mind:

 

Texas’ New Tax Filing Deadline

Due to the disruption of Winter Storm Uri, Texas residents now have until June 15 to file individual and business tax returns and make tax payments. Taxpayers also have until June 15 to make 2020 IRA contributions.

 

Economic Impact Payments

Many North Texans received at least one economic impact payment, or stimulus check, in 2020. However, these funds won’t affect your taxes, since they are not taxable. When filing your 2020 taxes, do not list the amount of these payments as income.

Another important note: Millions of eligible Americans still haven’t received any of the economic impact payments. If you’re one of them, you may not receive your payments until you file your 2020 tax return or a tax extension. If you think you quality for the economic impact payments but haven’t received them, you can check your eligibility and find out the status of your payments in the Guide to Economic Impact Payments compiled by the Consumer Financial Protection Bureau.

 

New Unemployment Compensation Exclusion

In 2020, a record number of Texans filed for unemployment benefits—many for the first time.

While unemployment benefits are typically taxable, the American Rescue Plan, enacted on March 11, 2021, provides an exclusion of up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation you received in 2020 of up to $10,200. If you’re married, each spouse receiving unemployment compensation doesn’t have to pay tax on those payments up to $10,200. Amounts over $10,200 for each individual are still taxable.

 

New Eligibility for Tax Credits

With many North Texans experiencing changes in income and other life events in 2020, it’s important to check your eligibility for tax credits and deductions before filing your taxes. This will save you time and effort and can result in more money in your pocket.

Certain credits may lead to a refund even if you don’t owe any taxes. Be sure to check whether you’re newly eligible for certain tax credits, such as the Earned Income Tax Credit (EITC), the Additional Child Tax Credit or the Recovery Rebate Credit. If you made less in 2020 than you did in 2019 (for example, because you got laid off or furloughed), be sure to look into the EITC, which may help you get a bigger tax credit and a larger refund.

If you’re unsure what credits you can claim when you file, use the IRS Interactive Tax Assistant to help determine if you’re eligible to claim certain credits and deductions. But remember: To benefit from a credit or deduction, you have to file a federal income tax return—even if you aren’t otherwise required to file—and specifically claim those credits.

 

Funds from Emergency Rental Assistance

If you received emergency rental assistance payments because of the pandemic, you may have wondered if those funds are considered income. The IRS has verified that rental assistance funds, as well as payments for use in paying your utilities or home energy expenses, are not considered income and not taxable.

 

Deductions for cash charitable contributions

In the midst of the pandemic, countless North Texans contributed money to help keep their neighbors and local organizations afloat. When filing your taxes, if you choose the standard deduction, you may be eligible to take a charitable deduction for cash contributions up to $300 made to qualifying charities in 2020 without having to itemize. This deduction would help lower your adjusted gross income and taxable income, leading to tax savings.

To find out if you qualify, use the IRS Interactive Tax Assistant tool, Can I Deduct My Charitable Contributions?

 

Electronic Tax Refunds

To submit your tax return and receive a refund as quickly (and safely) as possible, consider filing electronically and, if possible, choosing direct deposit.

Need a bank account to set up direct deposit? Check out the options listed on our Financial Resources page.

 

Be Aware: Scammers Are on the Rise

With the rollout of the economic impact payments, the IRS is warning taxpayers of an increased risk of scams. Be on the lookout for any unsolicited communications asking for your personal or private information through mail, email, phone call, text, social media or websites. The IRS will never ask you for your personal information or threaten your benefits by phone call, email, text or social media. They also won’t threaten you with jail or lawsuits, or demand tax payments on gift cards.

If you receive an unsolicited email, text or social media attempt that appears to be from the IRS or an organization associated with the IRS, like the Department of the Treasury Electronic Federal Tax Payment System, notify the IRS at phishing@irs.gov.

 

Need Tax Help?

Tax season can be stressful, but you don’t have to be an expert to file your taxes—and you can use virtual and online services to file safely and for free. United Way of Metropolitan Dallas has partnered with other local organizations to develop two programs that offer free tax prep services for North Texans:

  • Free Tax Prep: a free program designed to help families keep more of their hard-earned money. We offer free in-person services at more than 50 local locations for households earning below $58,000, plus online services at comfor households earning below $66,000. Each year, this program provides approximately 13,000 families with $18.5 million in tax refunds, creating a significant economic impact throughout our region.
  • MyMoneyDFW: a digital platform that offers free tax preparation, as well as job support, debt reduction, tips for budgeting and saving, and more. An average of 25,000 North Texans visit MyMoneyDFW each year to access high-quality financial tools and resources.

These and other financial stability programs are making real impacts in our neighbor’s lives. We recently heard from Foundation Communities, one of our free tax prep partners, about one of their clients, who used their services in February:

 

“During the extended tax season, we worked with a client who had previously filed with us at our tax sites. In May, she inquired about our all-virtual services, as she did not want to do in-person returns in the middle of a pandemic. Once we answered her inquiries, she submitted her information for the return to be completed and referred her sister to do the same. Within 72 hours, her return was prepared, and she was able to review and sign off on her tax return. She appreciated that our site managers were working longer hours, so she could have her video conference call scheduled after she got out of work. She [said it] was much easier for her to turn in her documents digitally, rather than taking a day off to go to a site in person and have her taxes prepared. She also exclaimed that she was thankful our program was still around, so she would be able to get her full refund without having to go to a tax preparer and pay them with a portion of it.”

 

For more information on financial stability, view our list of financial resources.

This article was published on: Apr 29, 2021