tax filing considerations

New 2021 Tax Filing Season Considerations

With the 2021 tax filing season around the corner, here are four new items to consider that could impact your 2020 tax return.

  • Recovery Rebate Credit/Economic Impact Payment (also known as Coronavirus Stimulus Check)
  • Above the Line Charitable Deduction
  • Federal Tax Refund Delays due to Identity Theft Prevention
  • Delays in Communication with the IRS During COVID-19
  • CA Health Insurance Mandate

Recovery Rebate Credit/Economic Impact Payment

Taxpayers who received an Economic Impact Payment in 2020 should keep the IRS Notice 1444, Your Economic Impact Payment, with their 2020 tax records and submit it with their other documents to us. You may be eligible to claim the Recovery Rebate Credit on your 2020 federal income tax return if:

  • You didn’t receive the Economic Impact Payment, or
  • Your Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018), plus $500 for each qualifying child you had in 2020

Above the Line Charitable Deduction

New this year, taxpayers may be able to take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations even if they don’t itemize their deductions. So, make sure you keep receipts and submit them at the time of filing.

Federal Tax Refund Delays due to Identity Theft Prevention

According to the IRS, some returns may require additional review, and processing may take longer. They caution taxpayers not to rely on receiving their refunds by a specific date. The IRS continues to strengthen its security reviews to help protect against identity theft and refund fraud. These reviews, however, can dramatically increase the amount of time it takes to get a refund.

Delays in Communication with the IRS During COVID-19

Service delays continue to be problematic due to COVID-19 restrictions. According to the IRS, service delays include:

  • Live phone support
  • Processing tax returns filed on paper
  • Answering mail from taxpayers
  • Reviewing tax returns, even for return filed electronically

So, the bottom line here is patience. We don’t foresee this changing for the 2021 filing season; until the IRS can get employees back to the office, these delays will be problematic.

CA Health Insurance Mandate

New this year, CA is requiring its residents to have health insurance coverage.

General Information

According to the Franchise Tax Board: Beginning January 1, 2020, California residents must either:

  • Have qualifying health insurance coverage
  • Obtain an exemption from the requirement to have coverage
  • Pay a penalty when they file their state tax return

You will begin reporting your health care coverage on your 2020 tax return, which you will file in the spring of 2021.

You may qualify for an exemption to the penalty. Most exemptions may be claimed on your state income tax return while filing.

Exemptions

Exemptions include the following:

  1. Exemptions Claimed on State Tax Return
    • Income is below the tax filing threshold
    • Health coverage is considered unaffordable (exceeded 8.24% of household income for the 2020 taxable year)
    • Families’ self-only coverage combined cost is unaffordable
    • Short coverage gap of 3 consecutive months or less
    • Certain non-citizens who are not lawfully present
    • Certain citizens living abroad/residents of another state or U.S. territory
    • Members of health care sharing ministry
    • Members of federally-recognized Indian tribes, including Alaskan Natives
    • Incarceration (other than incarceration pending the disposition of charges)
    • Enrolled in limited or restricted-scope Medi-Cal or other coverage from the California Department of Health Care Services
  2. Exemptions Processed by Covered CA
    • Religious conscience exemption
    • Affordability hardship
    • General hardships

Penalty

The penalty for not having coverage and not being eligible for an exemption is calculated based on the number of people in your household and your state income.
The penalty will be the higher of either:

  • A flat amount, based on the number of people in the tax household, or
  • A percentage of the household income

Flat amount

Pay $750 per adult and $375 per child.

Percentage of household income

Pay 2.5% of the amount of gross income that exceeds the filing threshold requirements based on the tax filing status and the number of dependents.

Example:

A family of 3 with a gross household income of $150,000 that includes:

  • 2 parents
  • 1 child

Flat amount calculation

$750 per adult, $375 per child: ($750 x 2) + $375 = $1,875

Percentage of household income calculation

2.5% of gross income that exceeds filing threshold: ($150,000 – $49,085 [1]) x .025) = $2,522.88.

Penalty amount

Since the household income percentage was higher than the flat amount, the penalty amount for this family is $2,522.88.

Have Questions or Need Help?

Check out our tax return preparation service and contact us today.