With the 2019 tax year filing deadline in the rear-view mirror and the end of 2020 behind us, our attention is focusing ahead to the 2020 tax filing season. As of the publication of this article, April 15, 2021 is the deadline for filing 2020 tax returns.
COVID-19 could have a significant impact to many taxpayer’s 2020 tax liability. For individuals who suffered a job loss due to COVID-19 and received unemployment compensation, both State and Federal enhanced unemployment benefit payments are considered taxable income. Many individuals did not opt to have Federal or State taxes withheld from these benefits, creating the potential for a significant balance due on April 15, 2021 if there is no withholding and no estimated tax payments made.
Individuals who received unemployment benefits, will need to review their Form UC-1099G, Statement of Unemployment Compensation Payments, so they can accurately complete their 2020 tax filing. The form is not mailed to taxpayers; however, the form can be accessed on the unemployment website. This form shows the amount of unemployment benefits that were received in 2020, including any taxes withheld and any amounts repaid.
The Department of Labor is required to send this information to the IRS and does so electronically. It is up to the taxpayer to include the individual UC-1099G information on their return.
Many individuals who suffered job losses during the pandemic may have opted to provide services or sell products to supplement their income, becoming a part of the “gig economy”. Any profits from such undertakings are considered taxable income. If estimated tax payments were not made, taxpayers may have a significant balance due when filing their 2020 tax return.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed on March 27, 2020 allowed individuals to suspend required minimum distributions (RMD) for the 2020 tax year. Individuals who elected not to receive an RMD in 2020, but calculated their 2020 estimated payments on a “safe harbor”, which is based on 2019 income, could potentially have overpaid their 2020 estimated taxes.
We recommend a year-end checkup to determine if your Federal or State income tax liability is sufficiently paid in or if your tax liability is on track to be overpaid. If you need assistance or have any questions on calculating your 2020 tax liability, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366‑5876 (Shelton), or (203) 359-1100 (Stamford), or email us at email@example.com.