Answers to This Year's Top Pandemic-Related Tax Questions
Tax season is bringing about added confusion this year, sparked by the COVID-19 pandemic and newly passed legislation. You may find yourself wondering how stimulus checks, unemployment payments, and deduction rules will impact your IRS filing. At JustAnswer, we are getting more than double the amount of tax questions we received at this time in 2020!
Taxes during the pandemic? Oof—that sounds like a can of worms. At JustAnswer, we’re getting more questions a day this tax season than ever before, and there are many more to come. Were you unemployed in 2020? Did you start a company? Did your company downsize? Are you still wondering where your government-issued stimulus check is? What do the effects of 2020 mean for your social security? Do you just need help with your accounting?
As of the first week of March this year, JustAnswer has received several thousand pandemic-related questions about the government stimulus payments, and we expect this amount to increase in the next two months as we get closer to Tax Day. In fact, if last year is any indication, questions about stimulus payments could end up comprising about one third of all tax-related questions we receive at JustAnswer during this tax season alone.
The pandemic-induced confusion has been exacerbated even further by newly-passed legislation waiving federal income taxes on up to $10,200 in unemployment insurance benefits for people who earn under $150,000 a year and an extension of the IRS filing deadline to May 17th. Wondering what taxpayers like yourself are asking about – and how JustAnswer experts are answering?
Top 5 pandemic-related tax questions this year
Wondering what taxpayers like yourself are asking about?
- Can I deduct my home office expenses (like the new stand-up desk and ergonomic chair I bought)?
- Do I owe taxes on my government stimulus payment?
- What if I moved to another state during the pandemic? Will I need to pay income tax in that state or my own?
- Do I owe taxes on my unemployment checks?
- Will it take longer to get a refund since the first tax filing date has been pushed out by two weeks this year?
Q&A with a tax expert
Read on as Angela Anderson (CPA, Certified Financial Planner and Tax Expert on JustAnswer) answers these and a few other pressing pandemic-related tax questions.
Q: Do I have to pay taxes on my unemployment payments received last year?
A: Ordinarily, and in some states still, the answer to this would be yes, However, the American Rescue Plan legislation passed last week allows those who received unemployment benefits to deduct $10,200 in payments from their 2020 income. The benefit only applies to those whose modified adjusted gross income is less than $150,000. However, unemployment payments may still be taxable on the state level; those states that currently tax unemployment benefits have yet to decide whether they will allow those state taxes to be waived as well.
Q: What if I already filed my taxes and now I am missing out on the unemployment deduction?
A: The IRS is asking people to wait and not file an amended return. The agency will issue further guidance for you later in the tax season. It is likely the IRS automatically will calculate what benefit you should have received and will refund you later in the year.
Q: Has the tax deadline moved again this year?
A: Yes, the IRS just announced that the federal tax deadline is May 17. However, you need to check on your specific state's tax filing deadlines, which may still be April 15th such as in Colorado.
Q: Can I deduct my home office expenses? What about the new desk and chair I bought?
A: As a result of the Tax Cuts and Jobs Act, unreimbursed employee expenses can no longer be deducted, at least, not until tax year 2026 anyway. Unreimbursed employee expenses fall under Miscellaneous Deductions, which have been suspended until tax year 2026. If a person is self-employed, he or she can deduct qualified home office expenses and the new desk and chair. Employees currently cannot deduct unreimbursed employee expenses. However, self-employed persons can still deduct these qualified expenses.
Q: Do I owe taxes on my government stimulus payment? What about my unemployment checks?
A: Government stimulus payments (Economic Impact Payments) are not taxable. This means that you do not have to report the payments on your tax return or pay taxes on the payments. These stimulus payments were paid to qualifying individuals to help reduce the financial burden of COVID 19 on individuals and their families.
Q: Will it take longer to get a refund since the first tax filing date has been pushed out by two weeks this year?
A: It will take the same time frame as usual to receive a refund, which is generally less than 21 days if a taxpayer e-filed and has direct deposit. From my experience, the average time frame to receive a direct deposited refund has been 2-3 weeks for federal and 1-2 weeks for the state. If you file a paper return, which is not advisable, it generally takes 6 weeks to receive a check. Filing a paper return is not advisable because the return could get lost in the mail or end up under a pile of papers on someone’s desk at the IRS, and the IRS recommends and prefers e-filing the return anyway, as e-filing reduces the amount of paperwork that the IRS has to deal with.
Q: I own a small business: how do I claim my pandemic loan on the return?
A: Depending on the circumstances, the pandemic loan may not be taxable. There are two types of loans that are being provided to businesses as a result of COVID 19. The two loans are as follows; Paycheck Protection Loan (PPL) and the Economic Injury Disaster Loan (EIDL). For the PPL loan, the part of the loan that has been forgiven is not taxable income. Non-taxable income is not reported on the tax return.
Q: What if I moved to another state during the pandemic? Will I need to pay income tax in that state or my own?
A: When relocating to another state anytime during the tax year, if you earned income in that state (generally a certain amount), you would be required to pay taxes to that state, even if that state was not your residential state all year long. When a taxpayer resides in two states during the tax year, the taxpayer is referred to as a part-year resident for tax purposes. If the taxpayer worked in both states, a tax return generally has to be filed in both states unless one of the states does not impose income tax (such as Texas), but there are exceptions to every rule. The exception here is that if a taxpayer lives in a reciprocity state, they only have to pay taxes to their state of residence and not both, the state that they work in and the residential state.
Q: What will my move mean for my taxes?
A: For employees who relocate temporarily (a year or less), for the employer, certain travel-related expenses (like airfare, temporary lodging, etc.) are deductible to the employee. However, the deduction is not claimed on the Form 2106. On the other hand, if a person permanently relocates, for tax years 2018-2025, as a result of the Tax Cuts and Jobs Act, moving expenses are suspended for non-military personnel. Even if an employer wants to permanently relocate an employee, the moving related expenses are not deductible to the employee. The non-deductible expenses are included in the employee's compensation to the extent paid directly or reimbursed by the company.
Q: What if I still haven't received my stimulus money?
A: If you have not received your stimulus payment(s), or did not receive the correct amount of the stimulus payment(s), you may qualify for the Recovery Rebate Credit, which you can claim on the 2020 tax return for each payment that you did not receive.
Even if you are not required to file a 2020 tax return, in order to apply for the Recovery Rebate Credit, you will need to file a 2020 tax return. If you are self-preparing your return, there is a section that is titled Recovery Rebate Credit. In that section is where you would input the information about the payment or payments that you did not receive.
Q: How do I maximize my taxes this year?
A: As an employee, you can make sure that you are having the proper amount withheld from your paycheck(s). Familiarize yourself with the new Form W4 and its instructions. If need be, use the IRS Tax Withholding Estimator to make sure that you are having the proper amount withheld. The way that it works is that if too much is withheld, you will receive a refund. If not enough is withheld from your paycheck, you will owe. You can access the withholding estimator at the following link: https://www.irs.gov/individuals/tax-withholding-estimator.
Tip: If you are self-employed, the best way to maximize taxes is to be sure to claim all qualified deductions and make estimated tax payments so that you are not dinged for failing to make estimated tax payments. In a few words, increase your deductions to reduce your taxable income.
Angela Anderson, CPA has three decades of tax experience, and has been answering questions on JustAnswer for 10 years:
Angela Anderson is a CPA and certified financial planner. As principal of A.Anderson Consulting, she provides interim FO services, cash-flow analysis, profit enhancement methods, strategic planning, systems review and design, audit preparation and other financial modeling services for companies and individuals. With more than 30 years of experience, Angela has also spent the past 10 years as a tax specialist expert on JustAnswer, where she provides live, on-demand advice and support for people seeking guidance on income tax returns, filing and other financial concerns.
Do you have other tax questions that weren’t answered above? Ask a tax question on JustAnswer to get a personalized response from certified tax Experts like Angela.