Get Ready to File Your 2020 Tax Return
Information About the 2021 Filing Season & Steps You Can Take Now to Prepare Your Taxes
The IRS is encouraging taxpayer to start thinking about their 2020 income tax returns (Form 1040 or Form 1040-SR), which are due by April 15, 2021.
There are several things you can do now that will help you file your federal tax return accurately and on time, including special steps related to COVID-19 stimulus checks (a.k.a. Economic Impact Payments).
Here is some useful information for the 2021 tax filing season:
2020 Income Tax Rates & Brackets
There are seven (7) federal individual income tax brackets/rates. The federal income tax rates for 2020 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The tax rate(s) that apply to you depend on your filing status and annual income. Keep in mind, if you fall into a higher tax bracket, that doesn’t mean all of your income will be taxed at the higher rate. Only the income you earn within a specific tax bracket is subject to the corresponding tax rate.
Here is the 2020 tax table for federal individual income taxes:
|Tax Rate||Single Filers||Married Couples Filing Jointly||Heads of Household||10%||$0 – $9,875||$0 – $19,750||$0 – $14,100|
|12%||$9,876 – $40,125||$19,751 – $80,250||$14,101 to $53,700|
|22%||$40,126 – $85,525||$80,251 – $171,050||$53,701 to $85,500|
|24%||$85,526 – $163,300||$171,051 – $326,600||$85,501 to $163,300|
|32%||$163,301 – $207,350||$326,601 – $414,700||$163,301 to $207,350|
|35%||$207,351 – $518,400||$414,701 – $622,050||$207,351 to $518,400|
|37%||$518,401 or more||$622,051 or more||$518,401 or more|
2020 Tax Return: Form 1040 or 1040-SR
There are currently two versions of the IRS income tax return for individuals. Form 1040 (U.S. Individual Income Tax Return) is the standard form that most taxpayers will file. Form 1040-SR (U.S. Tax Return for Seniors) is an optional alternative tax return for taxpayers who are age 65 or older. Both of these tax forms, as well as the related schedules, are available online for download.
Note that you may need to attach additional schedules to your 1040 tax return if you fall into certain categories based on your situation. Schedule 1 is used to report additional income (such as unemployment compensation, gambling winnings, or prize/award money) and claim certain tax deductions (such as student loan interest, self-employment tax, or educator expenses). Schedule 2 is used to report other taxes (such as self-employment tax, household employment taxes, alternative minimum tax, or additional tax on qualified retirement plans) and make an excess advance Premium Tax Credit repayment. Schedule 3 is used to claim any tax credits that you didn’t claim on Form 1040/1040-SR (such as the foreign tax credit, education credits, or general business credits) and report other payments (such as an amount paid with a tax extension or excess Social Security Tax withheld).
RELATED: Common Tax Questions & Answers
Steps You Can Take Now to Make Tax Filing Easier
Keeping things organized will make your tax filing experience much easier. It can also help you discover potential tax breaks that you may have overlooked before.
1. Gather Your Tax Records
Make sure you have copies of any supporting tax documents you’ll need when you file your return in 2021. This includes Forms W-2 from employers, Forms 1099 from banks or other payers, records of virtual currency transactions, and other income documents.
2. Check Your Individual Tax Identification Number (ITIN)
If you aren’t eligible for a Social Security Number (SSN), you should make sure your Individual Tax Identification Number (ITIN) has not expired before you file a tax return in 2021. You can apply for an ITIN by submitting Form W-7.
3. Make Sure You’ve Withheld Enough Tax
You can use a Tax Withholding Estimator to help you figure the right amount of tax to have withheld from your paycheck. This tool is available on the IRS website and will also help you determine whether you need to adjust your withholding and submit a new Form W-4 to your employer.
What to Consider When You File Taxes in 2021
There are several new things to consider when you file your 2020 income tax return.
Recovery Rebate Credit
If you didn’t receive an Economic Impact Payment (EIP), you can claim the Recovery Rebate Credit on your 2020 tax return. This is a new tax credit, however, there are eligibility requirements. You are only allowed to claim this credit if you did not receive a stimulus check in 2020, or if the stimulus payment you received was less than the amount you’re eligible for.
Tax Refund Interest Payments
If you received a tax refund from the IRS, you may have been paid interest as well. These interest payments are considered taxable and should be reported on your 2020 tax return (Form 1040). The IRS will send a Form 1099-INT in January 2021 to anyone who received refund interest over $10.
RELATED: Where’s My Refund?
Tax Refund Timing
The IRS statement on refund timing is, “Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. For example, the IRS, along with its partners in the tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud. Additionally, refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) can’t be issued before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.”