If you have gross income of $12,400 or more, you are typically required to file a tax return. If your income is lower, you should consider filing as you may be eligible for specific tax credits like the earned income tax credit and the recovery rebate credit.
A few key topics to know when filing your taxes for 2020 include:
- If you were eligible for Economic Impact Payments and did not receive one or both, you can file a tax return to claim the Recovery Rebate Credit instead (see below).
- Be on the look out for a Form 1099-G if you received unemployment benefits, as these are taxable.
- If you lost your job or had a drastic change in income in 2020, there is a new rule to help with that. The rule states that you may use your 2019 earned income to calculate your earned income tax credit if it results in a larger credit. This rule also applies to the additional child tax credit.
- Consider filing your tax return electronically with direct deposit to avoid any pandemic-related paper delays. If you are needing help with tax preparation, setting up direct deposit, or electronic filing in general, the IRS offers that help for free with the IRS Free File feature on their website.
So, how do you know whether to file a tax return? There are many reasons why a taxpayer must file, usually determined by income, filing status, age, if self-employed, if dependent of another, etc.
You may be due a refund if you answer yes to any of the following three questions but would have to file a tax return to receive the money that you’re due.
- Did your employer withhold federal income tax from your pay?
- Did you make any estimated tax payments?
- Did you have an overpayment of taxes in 2019, that was supposed to be applied to your 2020 taxes?
The recovery rebate credit is new on the 2020 Form 1040 and is related to the Economic Impact Payments (otherwise known as Stimulus payments). For more on the Recovery Rebate Credit, visit the IRS website here.
Some people may not have received the Economic Impact Payments or received less than what they should have. A tax return must be filed to claim the Recovery Rebate Credit even if someone is not normally required to file. If you don’t normally file, you may use the IRS Free File tool previously mentioned to claim the credit. As a reminder, those Economic Impact Payments, also known as stimulus checks, for those qualifying individuals were:
- First payment: $1,200 per person and $500 per qualifying child.
- Second payment: $600 per person and $600 per qualifying child.
The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are education credits that are available to those who pay higher education expenses. You may qualify even if you don’t have a tax liability and some are refundable.
If you usually don’t file, you may want to reconsider. As always, if you have any questions, feel free to contact a Henry+Horne tax professional.