Here is a reminder of some things you need to be aware of when planning for and preparing your 2020 income tax returns.
* The IRS was closed for 3 months beginning at the end of March. During this time mail was not opened and returns were not processed. As a result, the issuance of requested refunds was seriously delayed. Due to the excessive delay the refund checks finally received by taxpayers included a payment of interest calculated from April 15, 2020 till the date of issuance.
This interest is taxable income for 2020. You will receive a 2020 Form 1099-INT from the Department of the Treasury (IRS) in January of 2021, and this income must be reported on your 2020 Form 1040 (or 1040-SR) and state income tax return.
* Unemployment benefits received in 2020 due to the pandemic are fully taxable on your 2020 federal income tax return, and may also be taxable on your 2020 state income tax return (not on the New Jersey state return).
As most individuals collecting unemployment in 2020 needed every penny of the benefit. I expect they did not request federal income tax withholding on their benefits, and may end up owing federal income tax on their 2020 Form 1040 or 1040-SR.
Many states, New Jersey included, no longer mail out a paper Form 1099-G to report unemployment benefits paid and federal income tax withheld. If you received unemployment in 2020 you may need to go to your state’s unemployment benefit website – the site you used to apply for unemployment – and download a copy of your 2020 Form 1099-G to give to your tax professional.
* The Economic Impact Payment – a maximum of $1,200 ($2,400 if married filing jointly) plus $500 for each qualifying child you had in 2020 – is not taxable income. You do not have to report the amount you received as income on your 2020 income tax return.
But, like the Advance Premium Credit, this payment must be reconciled on your 2020 Form 1040 or 1040-SR. If you got more than you should have you do not have to pay back the excess. But if you did not get a payment or you got less than you should have you can claim a refundable Recovery Rebate Credit on your 2020 federal income tax return. So, you will need the amount you received when preparing your 2020 return