2020 Tax Return Updates

 Tax filing for 2020 Tax returns - Updates

This tax season has been a wild rollercoaster as the IRS announced there were no reasons to delay filing deadline, only to be convinced that due to the American Rescue Plan Act (passed March 11, 2021) and being caught in a backlog of processing documents, the due date would be moved to May 17, 2021 for individual 2020 tax returns (forms 1040, only no other tax return due on 4/15/2021 has been extended). 

Items impacted by the ARP Act include: up to $10,200 in unemployment benefits are not taxable for taxpayers that have adjusted gross income below $150,000 for 2020, taxpayers that receive advanced premium assistance to pay health insurance premiums via the Health Insurance Exchange are not required to repay any excess premium assistance for 2020, and Economic Impact Payment #3 (round 3 of stimulus payments) were authorized at an amount of $1,400 per person listed on the tax return (there are income phase-outs that if the income exceeds that amount, the taxpayer will not receive the payment currently but may be eligible to claim as a credit on the 2021 tax return, similar to the first and second stimulus payments).  

This week (April 5, 2021), Arizona Governor Doug Ducey signed an extension for AZ individual tax returns to conform to the filing due date of May 17, 2021.  Also included in that bill was an extension to utilize the AZ charitable tax credits (Qualifying Charitable Organizations, Qualifying Foster Care Organizations, Fees paid to Public Schools and School Tuition Organizations), which now are allowed to be funded up to the May 17, 2021 date as well.  The tax credit categories, amounts (single/married) and links to eligible charities are listed below:

• Contributions to Qualifying Charitable Organizations ($400/$800) formerly known as the Working Poor Credit - List of organizations here: 2021 Certified Charities
• Contributions to Qualifying Foster Care Organizations ($500/$1,000) - List of organizations here: 2021 Certified Foster Care Charities
• Contributions Made or Fees Paid to Public School ($200/$400) - Arizona K-12 schools are eligible
• Contributions to School Tuition Organization ($1,183/$2,365) - List of organizations here: School Tuition Organization List

As of the writing of this post (April 8, 2021), Arizona has not adopted conformity with ARP Act with regards to taxation of unemployment compensation.  The last time the Federal government did not tax a portion of unemployment, the state of AZ did not conform and that led to tax due notices from the state a couple of years later for many taxpayers since AZ begins the tax calculations on the Federal Adjusted Gross Income, so a word of caution.

There are other considerations in preparing tax returns this year that add to the complexity of preparing an accurate and paying the legally allowed amount of tax, including utilizing strategies to maximize the stimulus payments (either on the 2020 return if a taxpayer did not receive the full amount allowed or to set up qualifying for the EIP 3 using 2020 tax return information).  

This last year has been challenging and wearying for tax professionals, as well as the general public, please be sure to stop and consider how to be kind to one another.

Thank you.