Welcome to another New Year! Here at The Royce CPA Firm, we’re looking forward to better times ahead. What better way to ring in the New Year than with a look at some of the tax law changes you can expect? The good news is that Congress has approved a new stimulus package. The Consolidated Appropriations Act, 2021 has already gone into effect. Here’s a look at what individual taxpayers can expect from it.
Stimulus Payments: What You’ll Get
Stimulus payments have been a lifeline to many who have suffered financially during the pandemic. Yet, the first round of stimulus payments could only stretch so far. Congress has approved a second round of stimulus payments, which are already in the process of being rolled out. Here’s a look at the breakdown for single taxpayers:
- Single earning less than $75,000: $600
- Parents: An additional $600 per child under the age of 18
- Single earning more than $87,000: No stimulus payment
- Single earning between $75K and $87K: A portion of the $600 payment
For married couples, here’s what you can expect:
- Married earning less than $150,000 jointly: $1,200
- Parents: An additional $600 per child under the age of 18
- Married earning more than $174,000 jointly: No stimulus payment
- Married earning between $150K and $174K jointly: A portion of the $600 payment
Stimulus Payments: Their Effect on Taxes
These stimulus payments, which are officially termed “Economic Impact Payments” (EIPs), are actually advances made against your Recovery Rebate Tax Credit. Your tax return will reconcile the payments you received against the payments you should have received.
Let’s take a step back for a minute to consider this. When the IRS sent out the first round of EIPs in March 2020, the agency based your EIP on what you were expected to earn for 2020. That figure was calculated based on your prior tax return. If your income turned out to be either higher or lower for 2020, you may either owe money or be owed money.
For example, let’s say you didn’t qualify for an EIP in March because your income in 2019 was too high. And let’s say that your income dropped significantly during 2020. If your income dropped enough to let you qualify for the first round of EIPs, you’ll receive that money in your tax return.
This second round of EIPs, approved in late December 2020, will be reconciled on your tax return for 2021.
Unemployment Benefits
In March of 2020, unemployment benefits were boosted by an extra $600 per week. Those payments then expired. However, effective on December 26, 2020, the new tax law provides for an extra $300 per week for those collecting unemployment. This will be effective through the middle of March.
Those collecting unemployment must remember that those payments are taxable income. However, you should have had some taxes withheld from your unemployment payments to reduce your tax liability. You’ll get a Form 1099G in the mail, so be sure to bring that to your tax prep appointment.
Charitable Donations
For the past two years, the State of Arizona has allowed individuals to deduct charitable donations on top of the standard deduction. The recent law applies this to your federal taxes as well. For 2021, all tax filers in any state can deduct up to $300 in donations (or up to $600 for married couples filing jointly) on top of the standard deduction. Remember to always save your donation receipts!
When you work with The Royce CPA Firm of Tucson, you can feel confident knowing that your taxes are being handled by experienced, knowledgeable pros who will ensure you’re getting all the deductions you’re entitled to. Schedule your tax appointment today online or by calling (520) 321-4626.