Filing your taxes this year is key to getting the most Covid relief

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You could get more money back than you think, or at least your tax assessment. A number of Covid provisions can only be fully invoked through your tax return. Some tax credit rules have become more favorable as a result of the pandemic. And you may qualify for some tax breaks for the first time thanks to Covid.

The IRS begins accepting returns on February 12, and the filing deadline is April 15, unless you request an automatic renewal.
But by filing on time, you avoid being charged a penalty for late filing and possibly a penalty for non-payment if you still owe tax to the IRS.

Claim most of the incentive for which you qualify

In 2020, if you made less than $ 75,000 as a single, $ 112,500 as a householder, or $ 150,000 as a married couple and have not yet received Covid relief payments from the federal government, filing your federal tax return is the best way to receive the full amount of the two economic impact payments for which you are eligible.
The IRS has sent two payments so far: the first was up to $ 1,200 per adult and the second up to $ 600, with even more money going to those who had dependent children.

But anyone who didn’t file a federal tax return in 2019 or whose income in 2019 exceeded the 2020 income thresholds for the stimulus payments may not have received what they owe. That’s because, for the sake of speed, the IRS sent payments based on the 2019 tax information it had, as well as information it had for Social Security recipients.

The same situation may have affected parents divorced in 2020, said Elaine Maag, a major research organization at the Urban-Brookings Tax Policy Center.

It’s possible that the IRS sent the entire incentive payment from the family to the non-custodial parent.

In that case, noted Maag, the IRS won’t require ex-spouses without custody to repay the money they falsely received. And it will still send a double payment to the parent who can prove their custody status last year.

But To get the payment you owe, you need to claim the refundable recovery discount credit. The credit is awarded for the same amount as the incentive payment for which you are eligible. Refundable credits reduce your tax liability per dollar. If a credit exceeds your tax liability, you will get the rest as a refund.

You may be eligible for an income tax credit

Considering how difficult 2020 was financially for so many people, you may qualify for another tax break: the refundable Earned Income Tax Credit – that aims to reward work for low and middle income applicants.

To be eligible for the EITC, your income must be below certain thresholds depending on the number of children you have. For example, for tax year 2020, your adjusted gross income should not exceed $ 21,210 if you are a childless married couple, but as high as $ 56,844 if you have three children. (There are other factors involved in determining the suitability of the EITC, which are described in this document IRS summary.)

The credit is worth up to $ 6,660 for married couples with children and up to $ 538 for single, childless files.

In addition, the rules for the EITC have been modified to provide more Covid lighting to those who qualify. You can choose to base your EITC on your income for 2019 or 2020, whichever is the most beneficial you.
That same lookback provision also applies if you qualify for it the refundable tax credit for children.

“In either case, if you earned less in 2020 than in 2019, you can calculate your credits based on earnings for 2019 or earnings for 2020. You can choose a different year for each credit,” says Maag.

Small business owners will enjoy additional deductions

Small business owners who have paid for business expenses with money from a Paycheck Protection Program loan that has been forgiven can still deduct those expenses on their federal tax returns as if they had paid for it from income.

And the forgiven loan will be treated as tax-free to the small business owner.

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