Crossroads Planning

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COVID, Stimulus Checks, and 2020 Taxes: Important Things You Need to Know

2020 was an extremely difficult and complex year for just about everyone. Between the COVID-19 pandemic, rising unemployment, and a contentious presidential election, most Americans are more than happy to say goodbye to 2020 and hello to the new year. 

However, with tax season now underway, many are worried about how they will manage their taxes — especially with a number of new changes in place. 

Fortunately, we have all the most important information you need to weather the storm.

4 Changes to Expect When You File Your 2020 Taxes

California became one of the Coronavirus “hotspots” in 2020. As a result, residents of the Golden State have been severely impacted by the pandemic. 

Moreover, recent changes in legislation to help those most affected could end up making your taxes even more complicated. So, let’s take a look at 4 important forms and changes to the tax code that California residents can expect when they file their 2020 taxes:

Form 1099-G: Taxable at the Federal level, but not the State

Form 1099G reports the total taxable income issued to you in a calendar year to the IRS. As taxable income, these payments must be reported on your federal tax return, but they are exempt from California state income tax.

Total taxable unemployment compensation includes:

  • Unemployment Insurance (UI) benefits including Federal Extensions (FED-ED), Pandemic Additional Compensation (PAC), Pandemic Emergency Unemployment Compensation (PEUC), and Lost Wages Assistance (LWA)
  • Pandemic Unemployment Assistance (PUA) benefits
  • Disability Insurance (DI) benefits received as a substitute for UI benefits
  • Disaster Unemployment Assistance (DUA) benefits
  • Paid Family Leave (PFL) benefits

Note: Benefits are taxed based on the date the payment was issued.

Form 1095-A: California will require proof of health insurance

The 1095-A Form is a health insurance form that is needed to file your Federal Income Tax Return. It shows how many months you had health insurance and, if utilizing Covered California, how much Advanced Premium Tax Credit (APTC) you received. 

This is your proof that you had health insurance in place so that you won’t be subject to a tax penalty. It also helps to reconcile the amount of APTC that you received to the amount of income that you actually earned for the benefit year. 

Sold cryptocurrency needs to be reported

In California, your cryptocurrency is treated as a property holding. This means that capital gains tax applies if you sold any cryptocurrency in 2020. Additionally, you will need to report sold cryptocurrency to the IRS, as your profits will be treated as taxable income to the federal government. 

However, if you lost money through the sale of cryptocurrency, you can use these losses to offset capital gains or deduct up to $3,000 in taxable income. In most cases, you will report sold cryptocurrency on Form 8949, though you should also include your total sales on Schedule 1 and Schedule D. 

Stimulus checks need to be reported 

When taxpayers file their 2020 taxes, they’ll be asked to report the total Economic Impact Payment they received in 2020 (and early 2021 — if you received the second-round payment in the new year). 

There will be a separate worksheet on your tax return with instructions for calculating any outstanding amount owed, if applicable. The IRS advises tax filers to only fill out this portion of their return if they received less than the maximum payment amount.

Single filers and heads of household could have gotten up to $1,200, plus $500 for each qualifying child (a person under age 17 who is claimed as a dependent). Alternatively, married joint filers could have gotten up to $2,400, plus $500 for each qualifying child. 

The amounts were halved for the second stimulus check, with single filers and heads of household getting up to $600 and married joint filers receiving up to $1,200. However, the qualifying child payment increased to $600 for the second round. 

If you did not receive the maximum amounts based on these figures, you will want to fill out the Economic Impact portion of the return to see if you’re eligible for a tax credit. Anyone who receives the first or second payment should also receive a letter in the mail — Notice 1444 — stating the exact amount received. 

Final Thoughts on 2020 Taxes

Due to the complexities of recent changes to the tax code the IRS delayed the start of the 2021 season. As a result, there will be a slightly longer turnaround time for many tax returns to be processed — which could also mean delays in tax refunds if you are owed one this year.

Filing early will help ensure that your return is processed more quickly, and any refunds will be processed faster as well.

If you have questions about your taxes or would like a hand in the preparation and filing, we’d love to help! Click here to reach out and schedule a discovery call with the team.

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