The economic rebate received in 2020 was an advance. The advance needs to be reconciled on the 2020 tax If the client received less as an advance than he or she should have, they might be able to claim the recovery rebate credit on their 2020 return if one of the following applies to them:
- They didn’t receive an Economic Impact Payment in
- They are single, and their payment was less than $1,200.
- They are married, filed jointly for 2018 or 2019, and their payment was less than $2,400.
- They didn’t receive $500 for each qualifying
Clients who received too much of an advanced rebate because the payment was based on their 2019 (or 2018) income do not need to repay the excess when they file their 2020 tax return.
The COVID-19 Relief Act includes a second-round of 2020 rebate payments. The payments are $600 per adult and dependent child (under age 17). Adjusted gross income (AGI) thresholds apply at $75,000 for single taxpayers, $112,500 for HOH, and $150,000 for MFJ. 2019 AGI will be used for paying out the rebates. Similar to the earlier advance, a larger rebate can be claimed on the 2020 tax return.
Practitioner note. Taxpayers received a Notice 1444 with their advance rebate payment. If your client did not keep the letter, the IRS is expected to add a tool to their website that the client can access. Check for updates on the IRS tools page here. The advance rebate payment also shows on the taxpayer’s 2020 Wage and Income Transcript. To get a transcript online, see instructions here.
Refund interest payment
Because the filing date was delayed until July 15, 2020, clients who received a federal tax refund in 2020 may have been paid In January 2021, the IRS will send a Form 1099-INT to anyone who received interest of at least $10.
Practitioner note. A 2020 $3,000 refund paid on August 15, 2020, would earn interest of approximately $50. These Forms 1099-MISC shouldn’t be a big surprise.
New charitable deduction allowance
The CARES Act provided that taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 (single or joint) for cash contributions made in 2020 to qualifying The new Covid Relief Act provides that for taxable years beginning in 2021, the deduction is $300 ($600 in the case of a joint return) (Act Sec. 212).
Practitioner note. The new deduction shows on Line 10 (b) on the front of the 2020 Form 1040.
Other refund-related reminders
Refunds for taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with this credit.
Beginning in 2020, individuals may receive Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if they performed certain services for and received payments from a business. Please refer to the instructions for Form 1099-MISC and Form 1099-NEC to ensure business clients are filing the appropriate form and are aware of this
To see information from the most recently filed tax return, recent payments and more, taxpayers can sign up to view account information
Change of address
Taxpayers should notify the IRS of address changes and notify the Social Security Administration of a legal name change to avoid tax return processing delays.
Taxpayers with an Individual Tax Identification Number (ITIN) should ensure it hasn’t expired before filing a tax return in For example, ITINs not used on a federal tax return at least once in the last three years will expire on December 31, 2020. If the ITIN has expired, IRS recommends taxpayers submit Form W-7, Application for IRS Individual Taxpayer Identification Number, now to renew an ITIN. Taxpayers who fail to renew ITINs before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits.