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Get Your Top 2020 Tax Questions Answered

Written by USALLIANCE | Apr 6, 2021 4:27:24 PM

As much as everyone should be entitled to a freebie this year, tax season 2020 is here. We still have to file our taxes with the state and federal government—boo!—but there are a few silver linings to the dark, billowing clouds that were 2020, such as stimulus cash and a filing extension.

There are also a few confusing circumstances, such as unemployment tax thresholds and what happens when you work remotely in a different state. Here at USALLIANCE, we know our members have some questions about this tax season. We’ve answered the most common questions below.

And hey, who knows? Maybe after we submit our taxes for 2020, we can put the rest of that rotten year behind us, too.

Can I File Taxes for Free?

Short Answer: Yes!

You can file your federal taxes for free, and you may be able to file your state taxes as well, depending on your income level and in which state you live.

Despite what those big-name tax filing services may be promoting, there are ways to file your federal taxes for free, and it doesn’t matter how much money you make. If you make $72,000 or more, you can use the federal government’s Free File Fillable Forms. You can also use the free fillable forms if you made less than $72,000 in 2020. However—as a bonus—you may also be eligible for free guided tax preparation from a professional company such as Turbo Tax, TaxSlayer, Free 1040 Tax Return, or several others. Each provider has different income, military service, and Earned Income Tax Credit (EITC) requirements, so be sure to review the IRS’s list before choosing the right one for you.

The free fillable tax forms are available to anyone filing federal taxes in the US for 2020. Download the tax forms you need through a link available on irs.gov or by going directly to freefillableforms.com. You will need to know which form to fill out—for most people, a form 1040—and you will also need to know the following, and perhaps more, depending on your situation:

Official wage, salary, or other documentation such as your W-2, 1099, or other similar receipts showing the money you made in 2020.

Receipts, charitable donation documentation, unemployment documentation, social security withdrawal information, or any other deductions or credits that affect your adjusted gross income.

Social security number—for yourself, your spouse if filing jointly, and any dependents.

Some services offer free state tax filing as well. Check with your state government websites, such as this one from Massachusetts, for more information.

Will I owe taxes on my Economic Impact  checks?

Short Answer: No!

In June, the US Treasury reported it cut 159 million Economic Impact Checks, otherwise known as "stimulus checks" worth more than $267 billion. That’s just through June and doesn’t account for the most recent round of EIP payments, which many of us received on or around St. Patrick’s Day, 2021. These payments act as tax credits and NOT taxable income, according to the Internal Revenue Service (IRS). That means the money is yours free and clear, and you do not owe taxes on it.

Not only do you not have to claim your stimulus payment as income—no matter if you are filing for 2020 or filing your third-round payment in 2021—your EIP payment does not affect your eligibility for federal government assistance or benefit programs. Finally, some good news out of 2020!

How will unemployment in 2020 affect my taxes?

Short Answer: Depends.

You will owe federal income taxes on your unemployment benefits from 2020 if you collected more than $10,200 and make less than $150K. What you owe for state taxes depends on where you live.

If you are one of the approximately 40 million Americans that claimed unemployment benefits in 2020, you will likely have to pay taxes on at least some of the money you collected. But the good news is you will probably get a big break.

As part of President Joe Biden’s American Rescue Plan, if you made less than $150,000 in 2020, then the first $10,200 you received in unemployment benefits will be tax-free. According to a Century Foundation study, Americans collected $14,000 on average in unemployment benefits in 2020. With $10,200 of that money being income tax-free, the average American would owe taxes on the remaining $3,800 in benefit payouts, only.

Your state tax bill depends on where you live. This handy guide from Kiplinger can help you determine how much state income tax you owe on your unemployment benefits.

What if I moved to a different state during the pandemic?

Short Answer: It depends if you established residency in your new state or not.

Did you get a new driver’s license or register to vote at your new address? What about work? Did you continue your old job remotely from a new state? Chances are, if you answered ‘yes’ to any of these questions, you might owe taxes in two states.

If you have a new license, voted, get electricity bills, and have a job down your new street—you moved! It’s official. If you worked in your previous state before moving, you should consider yourself taxable in both states. The same goes for people who moved in with their folks or hunkered up at the out-of-state cottage and worked your normal job remotely for an extended period.

The good news is some states, such as Connecticut, are offering credits to reduce double-tax situations—best to check with your state before filing.

When is the last day to file my taxes?

Short Answer: For Federal taxes, Monday, May 17, 2021.

The Treasury Department and the IRS did us all a solid in March and extended the filing deadline for individual 2020 taxes to May 17. Procrastinators rejoice!

That said, State taxes can be different. Be sure to check your state's tax deadline. 

How can I file a tax extension?

Short Answer: Easy - Online!

Use Free File, the same service you can use to file your taxes online.

If you need an extension, you can get one through the federal government, but you still have to pay something in most cases. You will usually incur penalties if you do not pay your taxes on time, and a filing extension doesn’t change the payment due date. The safest thing to do is estimate the amount you owe and pay it when you file for an extension. Once granted, you will have until October 15 to file your 2020 taxes.

We hope these common questions will help guide you through this tax season. Also, remember to select “Direct Deposit” and connect your USALLIANCE MyLife Checking Account when filing your taxes this year. By doing this, you may receive your federal and state tax refunds up to 3x faster!