The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.
This one-month delay is not as much extra time as the IRS offered last year when the filing deadline was pushed to July 15. But it should make it easier for the taxpayer to get a handle on their finances – as well as tax changes that took effect just this month with the signing of the American Rescue Plan. The new law made the first $10,200 of unemployment benefits received in 2020 tax-free for people with an income of less than $150,000, a significant change for many whose jobs were affected by the pandemic.
Please CLICK HERE to read the full article on IRS.gov
The 1099-NEC disappeared in the early ’80s, and after a 38 absence is making a disco comeback! This form will be used to report non-employee compensation in box 1, meaning that nonemployee compensation will no longer be reported on Form 1099-MISC. Form 1099-NEC will need to be entered on a Schedule C. This form should be issued to your client by January 31, the same deadline for Form W-2. Box 4 will be used to report any backup withholding.
Form 8915-E will be used to report distributions and repayments for 2020 qualified disasters and 2020 distributions subject to the CARES Act, which allows up to $100,000 in distributions spread out over three years.
Form 5884-A – Employee Retention Credit
This is a new form that will be used to report a refundable credit that employers may receive under the CARES Act for retaining employees when their businesses were required to shut down due to COVID-19.
Form 7202 – Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals
This form will be used to calculate the refundable credits for sick and family leaves caused by the COVID-19 outbreak. The sum of the sick leave credit and the family leave credit will be included on Schedule 3 (Form 1040), line 12b.
Form W-4 was completely redesigned for tax year 2020. The goals of the redesign were to align the form with the changes resulting from the Tax Cuts and Jobs Act and prevent people from under-reporting their allowances. There is a new 5 step process that guides taxpayers through the form. The updates include:
Personal withholding allowances were eliminated
Step 3 allows taxpayers to indicate that they are eligible for the Child Tax Credit or the Other Dependent Credit
Step 4 is an optional section that allows taxpayers to make adjustments for additional withholding, reduce withholding, and enter additional income tax they would like withheld from each paycheck
The exemption line was removed
There are several changes to Form 1040 this year.
Line 30 has been added for the Recovery Rebate Credit
Line 10b has been added to account for charitable cash contributions up to $300 being treated as above-the-line deductions (reported on Schedule A)
There are three separate lines for withholdings
The question about cryptocurrency has been moved higher up on the form
With the reinstatement of Form 1099-NEC to report nonemployee compensation (details above), Form 1099-MISC has been updated for 2020. The box numbers have been rearranged to comply with the removal of nonemployee compensation.
Box 7 – Payer made direct sales of $5,000 or more
Box 9 – Crop insurance proceeds
Box 10 – Gross proceeds to an attorney
Box 12 – Section 409A deferrals
Box 14 – Non-qualified deferred compensation income
Boxes 15 – State taxes withheld
Box 16 – State identification number
Box 17 – Amount of income earned in the state
Clients expecting a 1099-MISC should receive the form by February 28. This due date has also changed from previous years.
Updated EIC Amounts
As is every year, the income limits and maximum credit amounts for EIC adjust for inflation. The below blurry image (sorry) reflects those changes … if you squint, the amounts show up clearly.
Tax Year 2020:Changes to IRS Form 1040
The IRS recently released a draft of Form 1040, U.S. Individual Income Tax Return. Here is a look at some of the most significant changes proposed for the tax year 2020 (returns filed in 2021). Please note: The information below is subject to change. The draft of Form 1040 should not be used to file your clients’ taxes.
Stimulus Checks and the Recovery Rebate Credit
According to the draft, a new Line 30 has been added on page two of Form 1040 for the “Recovery Rebate Credit.” This is where taxpayers who did not get the payments or should have received larger payments (due to birth of child or changes in income) will enter the additional amount due. This amount will be treated as a refundable credit. The reconciliation of stimulus payments will be done on a worksheet contained in the Form 1040 Instruction, which has not yet been released.
CARES Act Relief
The “Amount You Owe” section of the new 1040 now says, “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020.” This is because, under the CARES Act, employers can defer deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made between March 27, 2020, and December 31, 2020. This deferred amount will be reported in the Payments section of Form 1040, Schedule 3, Line 12e as a “Deferral for certain Schedule H or SE filers.” For self-employed taxpayers, a third page is being added to the Schedule SE where the deferred portion of the self-employment tax will be calculated. Schedule H will also be redesigned to address the deferred portion of the social security tax deposits made by taxpayers who have household employees. The new refundable credit for qualified sick and family leave will be entered on Schedule 3, Line 12b. The credit amount will be calculated on Form 7202, which the IRS has not released yet in draft form.
Above-the-line Charitable Contributions
For tax year 2020 only, charitable cash contributions up to $300 will be treated as above-the-line deductions (reported on Schedule A). The new Line 10b is for charitable contributions for taxpayers taking the standard deduction.
Reporting Income Tax Withholding
Instead of a single line for federal income tax withholding, the new Form 1040 has three separate lines for withholdings: Line 25a is for Form W-2, Line 25b is for Form 1099, Line 25c is for other forms (see instructions). Line 25d is the total tax withholdings. This should make withholding reconciliation much easier for tax preparers to recognize.
The question about virtual currency first appeared in 2019 as a checkbox at the top of Schedule 1, Additional Income and Adjustments to Income. For tax year 2020, the question “At any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” has been moved just below the taxpayer’s name and address on the main Form 1040.
The IRS has taken the position that virtual currency is considered an investment property, and any transaction involving the sale or exchange of virtual currency must be accounted for on the tax return just as a taxpayer would account for the sale of any other investment. This will most likely involve a reportable transaction on Form 8949.
1099-NEC is used by payers to report payments of $600 or more made in the course of a trade or business to others for services. Prior to the creation of this form, these payments were reported in box 7 on Form 1099-MISC. Payers must provide a copy of 1099-NEC to the independent contractor by January 31 of the year following payment.
Characteristics of Nonemployee compensation (NEC)
The payments made during the year totaled $600 or more.
The payee was not an employee of the payer.
The payment was made in the course of a trade or business
The payment was made to an individual, a partnership, or an estate; or, payment was made to a corporation
Due to the creation of 1099-NEC, IRS revised the Form 1099-Misc and rearranged the box number for reporting certain income.
Payer made direct sales of $5,000 or more (checkbox) in box 7.
Crop insurance proceeds are reported in box 9.
Gross proceeds to an attorney are reported in box 10.
Section 409A deferrals are reported in box 12.
Nonqualified deferred compensation income is reported in box 14.
Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.
Now you can E-file 1040-X. This is a major milestone in tax administration, the Internal Revenue Service announced today that taxpayers can now submit Form 1040-X electronically. This will help Taxpayers correct tax returns with ease and speed up processing tremendously.
E-filing as a whole has consistently grown each year and the 1040-X, Amended U.S. Individual Income Tax Return, has been one of the major individual tax forms that needed to be paper-filed. Today’s announcement follows years of effort by the IRS, and this enhancement allows taxpayers to quickly electronically file corrected, previously filed tax returns. Each year around 3 million 1040-X are filed by the taxpayers and so the ability to file Form 1040-X electronically has been an important long-term goal of the IRS. Click Here to read the full article.
Taxpayers still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form. Those filing Form 1040-X electronically and on paper can use Where’s My Amended Return? online tool to check the status of their amended return.
We will be rolling out E-filing for the 1040-X over the next several weeks. We anticipate enabling the ability in the software by end of October. We will post updates as we roll out the product.