New Rule Could Provide Greater Tax Refunds: What You Need to Know
In November 2020, a non-profit group called the Commonwealth raised the alarm. The fact is that many families faced with unemployment during the pandemic can expect unpleasant surprises in the tax season. According to the analysis, they risk losing up to 80% of their tax refunds. The edition told in more detail Yahoo!
On December 27, then-President Donald Trump signed into law a massive COVID-19 relief bill that included a workaround: a "lookback rule" that allows taxpayers to use their 2019 or 2020 income, whichever comes first. more profitable in tax returns.
The rule should allow many working families to avoid problems, but only if they are well versed in how to apply this year.
“For tens of millions of Americans, the tax refund is a really important part of their fiscal year,” said Timothy Flack, CEO and co-founder of Commonwealth.
On the subject: Tax season is approaching: what you need to know
The specificity of the tax code related to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) created the need for a rule.
What does the rule mean
Taxpayers qualify and receive refunds based on their income and number of dependents. Generally, the less you earn, the greater the return. And refundable tax credits are especially useful because they can reduce the amount of tax someone owes to zero or potentially lead to a refund.
It is important for taxpayers to be careful when compiling taxes. These are different calculations for EITC and CTC. And the IRS is closely monitoring those who apply for these loans to avoid fraud, writes ABC7.
The Earned Income Tax Credit is a refundable tax credit for low and middle income workers. (In 2020, the earned income tax credit ranged from $ 538 to $ 6, depending on income and number of children.)
Unemployment benefits are not considered earned income but are taxable. Thus, a taxpayer with a large share of income from unemployment benefits and little "earned" income may face significant tax bills and small credits to compensate for them.
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The rule means that about 20 million people are now "much more likely to get a loan at the level they are used to, and a typical return."
Sodruzhestvo, a think tank that specializes in helping financially vulnerable people, tries to make families aware of this opportunity when they apply.
The group has a website dedicated to this issue, and the company hopes that professional tax preparers and professional tax reporting software will notify clients of the changes. Even if people are aware of the change, an additional hurdle is that applicants need to prepare their 2019 reports.
“This may seem like unnecessary hassle, many of us have had a very difficult year 2020, and digging in boxes in search of tax reports may seem inappropriate,” the company said. “But this year, for some families, this money will make a huge difference.”
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