For many people, 2020 has been a challenging year for financial and tax planning. Here's everything you need to know to complete your taxes accurately and efficiently this year.
The federal tax filing deadline for individuals has been extended to May 17, 2021. Quarterly estimated tax payments are still due on April 15, 2021. For additional questions and the latest information on the tax deadline change, visit our “IRS Announced Federal Tax Filing and Payment Deadline Extension” blog post.
For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.
Whether you're an individual or a business owner, filing your taxes for the year prior is often top of mind when the new year rolls around. Fortunately, this comprehensive guide can help you get through filing 2020 taxes, whether you file on your own or get help from a tax expert. Here's what you need to know.
Deadline for filing 2020 taxes
One of the first questions most people want an answer to is: When are taxes due?
For 2020 tax returns — those filed in 2021 — the deadline to file your return and pay any tax due has been extended from April 15, 2021 to May 17, 2021. Some states have still not extended the deadline for state income taxes, so check your state government’s website for more information.
May 17, 2021, is also the deadline for requesting an individual tax return extension and making 2020 IRA contributions.
If you make estimated quarterly payments, keep in mind the deadline to make your first estimated payment toward 2021 taxes hasn't changed — it remains April 15, 2021. Even if you wait until the last minute to file your tax return, you'll need to calculate your first quarterly installment and make a payment by the normal deadline.
Form 1040 options
Form 1040 is the standard federal income tax form individuals use to report their income to the IRS, claim tax deductions and credits, and calculate their refunds or tax due for the year.
There are two versions to choose from:
- Form 1040. The standard Form 1040 is the version most taxpayers will use. While Form 1040 is only two pages long, many taxpayers need to attach additional forms and schedules to their tax returns to report different types of income and claim deductions and tax credits.
- Form 1040-SR. Form 1040-SR is a newer version of Form 1040 for people age 65 and older. You can use this form whether you itemize or claim the standard deduction. The basic difference between this version and the standard Form 1040 is that Form 1040-SR uses a larger font and includes an embedded standard deduction table.
2020 tax brackets
Federal income taxes are progressive, meaning people with higher incomes pay a higher percentage of their income to the federal government than people who earn less. One of the ways the tax system achieves this is through tax brackets.
There are seven tax brackets for the 2020 tax year, ranging from 10% to 37%. Your marginal tax rate depends on your total taxable income. Here are the 2020 tax brackets for taxes due April 15, 2021:
|Tax Rate||Single||Head of Household||Married Filing Jointly||Married Filing Separately|
|10%||Up to $9,875||Up to $14,100||Up to $19,750||Up to $9,875|
|12%||$9,876 - $40,125||$14,101 - $53,700||$19,751 - $80,250||$9,876 - $40,125|
|22%||$40,126 - $85,525||$53,701 - $85,500||$80,251 - $171,050||$40,126 - $85,525|
|24%||$85,526 - $163,300||$85,501 - $163,300||$171,051 - $326,600||$85,526 - $163,300|
|32%||$163,301 - $207,350||$163,301 - $207,350||$326,601 - $414,700||$163,301 - $207,350|
|35%||$207,351 - $518,400||$207,351 - $518,400||$414,701 - $622,050||$207,351 - $311,025|
|37%||$518,401 and Up||$518,401 and Up||$622,051 and Up||$311,026 and Up|
For example, if you're a single filer with a taxable income of $60,000 after taking all of your applicable adjustments and deductions, the first $9,875 of your income will be taxed at 10%. From $9,876 to $40,125, you'll be taxed at 12%. On the remaining $19,875, you'll be taxed at 22%.
Use our Tax Bracket Calculator to estimate your taxable income for 2020 and figure out which tax bracket you're in.
Tax breaks included in pandemic relief bills
A series of pandemic relief bills over 2020 and 2021 include several new or expanded tax breaks for individuals and businesses. Here's a quick overview of some of these tax provisions and links:
- Stimulus payments. Many taxpayers were eligible for three different stimulus checks, also known as Economic Impact Payments, in 2020 and 2021. These payments aren't taxable income. The first two payments were an advance on a 2020 tax credit, and the third stimulus was an advance on a 2021 tax credit but based on your most recently filed tax return. When you file your 2020 and 2021 tax returns, you'll need to provide the amounts you received (if any). If you're eligible for a larger stimulus payment based on your 2020 or 2021 tax return, you can claim it as a Recovery Rebate Credit.
- Tax-free unemployment benefits. The American Rescue Plan made the first $10,200 of unemployment benefits received in 2020 tax-free for households earning less than $150,000 (or the first $20,400 for those married filing jointly who both received unemployment benefits). Typically, all unemployment benefits are considered taxable income.
- No repayment of excess advance payments of the Premium Tax Credit. Ordinarily, if you claim the Premium Tax Credit (PTC) for your health insurance, you must repay the amount of Advance Premium Tax Credit you receive that is greater than your Premium Tax Credit. Known as excess APTC, this is usually reported on form 8962. The IRS has suspended the requirement for taxpayers to repay excess advance payments for the PTC in 2020.
- Tax credits for sick and family leave. Self-employed taxpayers and business owners can take advantage of new tax credits for sick and family leave due to the COVID-19 pandemic. For self-employed taxpayers, the credit is based on their average daily self-employment income. For businesses that provided employees with paid sick or family leave due to the pandemic, the credit is based on wages paid.
- Charitable deductions for non- Typically, you need to itemize deductions to get a tax break for charitable contributions. For 2020, even if you don't itemize, you can claim up to $300 in charitable cash donations as an "above-the-line" deduction, which reduces your adjusted gross income.
- Penalties waived for early retirement account withdrawals due to COVID-19. Normally, if you withdraw funds from a 401(k) or IRA before the age of 59½, the withdrawal is subject to a 10% early withdrawal penalty. The Coronavirus Aid, Relief and Economic Security (CARES) Act waived penalties on up to $100,000 of early withdrawals from retirement accounts in 2020. To qualify for the waiver, you had to have been diagnosed with COVID-19; experienced adverse financial consequences due to a quarantine, furlough, reduction in hours, or layoff; or unable to work because your child's day care closed or reduced hours. Along with this provision, taxpayers can choose to spread the tax owed on their COVID-19 related retirement distribution over three years.
Enhanced health insurance subsidies
If you purchase health insurance through the federal exchange, you may be eligible for financial assistance to cover your premiums.
The American Rescue Plan provides higher premium subsidies by ensuring that enrollees pay no more than 8.5% of their income toward the coverage (down from 10%). People earning more than the current cap of 400% of the federal poverty level — roughly $51,000 for an individual or $106,000 for a family of four in 2021 — will become eligible for subsidies for the first time.
You can return to the exchange by May 15 to get a larger subsidy or change your plan. If you don't modify your plan before that date, you may be able to claim the subsidy as a tax credit when you file your 2021 tax return.
The American Rescue Plan also provides new subsidies for people who lost their jobs. It allows people collecting unemployment benefits to sign up for health insurance through the federal exchange with no premiums in 2021. Laid-off workers who want to remain on their former employer's health insurance plan won't pay any premiums from April 2021 through the end of September.
More time to spend flexible spending account funds
During 2020, many day care facilities and summer camps were closed, and many people postponed health care services during the pandemic. This left many owners of flexible spending accounts (FSAs) worried about losing their dependent care FSA and health care FSA dollars.
Typically, flexible spending accounts have "use it or lose it" provisions, which require employees to forfeit year-end balances. Employers that offer health care FSAs may permit participants to carry over up to $550 to use any time during the next year or permit an unlimited amount to be used during a 2½ month grace period in the next year. Dependent care FSAs can take advantage of the same 2½ month grace period but not the $550 carryover.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 provided some relief for employees who were worried about losing their FSA funds. Now, both health care and dependent care FSAs can permit an unlimited amount to be carried over to the next year or allow a full 12-month grace period. Either way, employees get an extra year to spend their 2020 flexible spending account dollars.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.