Encouraged by the urgency brought on by COVID and the recession, Congress actively passed extensive tax legislation in 2020. These brought about several changes to United States tax laws as well as the paperwork required to file taxes. Below, we highlight some of the more prominent changes that you should be aware of as we wrap up on this wild and crazy year, and prepare for 2021.
The CARES Act and Economic Impact Payments
Based on income as well as any qualifying children, taxpayers received stimulus checks this year. The IRS has since clarified that this stimulus payment is not to be included in anyone’s gross income calculation, nor will it affect refunds or amounts owed.
However, any individual taxpayers who were entitled to an Economic Impact Payment and either did not receive it at all or only received part of it will be able to claim the amount they are owed as a Recovery Rebate Credit when they file their 2020 tax return.
Paycheck Protection Program (PPP) Loans
If they applied, eligible small businesses, non-profits, and other businesses received PPP loans to cover payroll and other essential expenses for a six-month period during 2020. If these loans were spent on covered or eligible expenses during the Covered Period, then they may be forgiven by the Small Business Administration (SBA). Individual lenders can provide more details about forgiveness eligibility and options.
The IRS has issued guidance noting that the loans and forgiveness are not to be included from gross income. On a related note, expenses that were forgiven are not eligible for deduction, either.
Changes to 1099 Forms
There have been a couple of changes to 1099 forms in order to streamline their submission, moving forward. Form 1099-MISC has been updated starting with tax year 2020, and must now be filed by March 1 (paper) or March 31 (electronically). Form 1099-NEC is due by February 1st. Both forms must still be provided to the recipient by February 1, so that they can proceed with their own taxes.
Changes Around Children
Starting with the 2020 tax year, the SECURE ACT repealed the Tax Cuts and Jobs Act (TCJA) which taxed net unearned income for all children under 19 or full-time students under 24 at the same rates as trusts and estate taxes.
RMDs and Retirement
Lots of changes came into play in 2020, primarily to give taxpayers the ability to find some assistance from within their very own retirement savings accounts. The age at which individuals are required to take RMDs has been moved from 70.5 to 72, but that’s not the only change that came for distributions. In 2020, taxpayers can take a distribution of up to $100K without facing the 10% penalty for early withdrawals. Loans of up to $100K can also be taken from qualified plans, with an extended period of six years to repay the loan.
An added fun change to the retirement planning rules—and one that doesn’t necessarily have to do with mitigating the negative effects of COVID—is that there is no more maximum age for contributing to traditional IRAs. Anyone can contribute, regardless of how old or young they are!
We’ve highlighted some of the major 2020 changes to tax policy that could affect individual taxpayers like you. However, for the most complete and up-to-date information that is actually relevant to your individual situation, be sure to check directly with a certified financial professional.