Top Three Troubling Tax Season Topics

By: National Association of Tax Professionals

To say this tax season has been unpredictable is an understatement, but it’s still something that we as tax professionals are equipped to handle. There are still many unknowns, especially with the recent extension of tax season deadlines, but there are a few topics our research team is seeing questions about week after week.

Q: What’s the impact on people still waiting for stimulus credits?

A: Those who may be eligible for stimulus payments, should carefully review the guidelines for the recovery rebate credit. Most people received economic impact payments automatically. Anyone who received the maximum amount does not need to include any information about their payments when they file. Those who didn’t receive the payment, or only received partial payment, may be eligible to claim the recovery rebate credit when filing their 2020 return. The advance stimulus payments received are not taxable and they do not reduce a taxpayer’s refund when they file in 2021.

Other common scenarios:

• If the taxpayer does not know how much their economic impact payments (EIP) were to reconcile on their 2020 return, they should create an account on the IRS website
• If a child was born in 2020, the taxpayer claiming the child will receive both the EIP-1 payment of $500 and the EIP-2 payment of $600 as part of the recovery rebate credit.
• Taxpayers who died in 2020 are eligible for all EIPs, even if the first payment was sent back. The surviving spouse filing the tax return will reconcile that on the recovery rebate credit worksheet.
• Custodial and noncustodial parents alternating children each year will both receive the EIPs for the children.

Q: What should people know about the filing season deadline extensions?

A: The IRS delayed the start of filing season opening to Feb. 12, 2021, and extended the 2021 filing season from April 15, 2021, to May 17, 2021. This announcement was made in mid-March. The following deadlines were also extended:

• Time to make contributions to IRAs and HSAs (extended from April 15 to May 17)
• 2017 unclaimed refunds (extended from April 15 to May 17)
• 2021 AFSP deadline (extended from April 15 to May 17)

The delayed start was meant to allow the IRS time to complete additional programming and testing of their systems to take into account the Dec. 27, 2020, tax law change (Consolidated Appropriations Act, 2021), which provided many individuals with a second economic impact payment and other benefits.

Also, the IRS is still processing 2019 returns. For those taxpayers whose refund could not be issued in 2020 due to the return being corrected, reviewed, or awaiting correspondence from the taxpayer, the IRS will issue paper checks in 2021 according to their normal processes.

Overall, the IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit if there are no issues with their tax return

Q: How is unemployment treated on 2020 returns?

A: Unemployment benefits are taxable and not considered earned income for earned income credit (EIC) purposes. Make sure the unemployment benefits reported on Form 1099-G is the actual amount the taxpayer received. With the loosening of eligibility rules for unemployment insurance there was a rise in fraudulent claims in 2020.

Unemployment benefits may be subject to the kiddie tax and may cause payback of the advanced premium credit. It is important to note the American Rescue Plan Act made unemployment income up to $10,200 per individual in 2020, non-taxable.