When you get ready to file your federal tax return there are new things to consider when it comes to which credits to claim and what deductions to take. These things can affect the size of any refund you may receive.
Here are some new key things you should consider when filing your 2020 tax return.
Recovery rebate credit
You may be able to claim the recovery rebate credit if you met the eligibility requirements in 2020 and one of the following applies to you:
• You didn’t receive an Economic Impact Payment in 2020.
• You are single and your payment was less than $1,200.
• You are married, filed jointly for 2018 or 2019 and your payment was less than $2,400.
• You didn’t receive $500 for each qualifying child.
Refund interest payment
People who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest of at least $10.
New charitable deduction allowance
New this year, taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For more information, you should review Publication 526, Charitable Contributions.
Other refund-related reminders
• Taxpayers shouldn’t rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some tax returns may require additional review and processing may take longer.
• 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.
• Taxpayers can track the status of their refund using the Where’s My Refund? tool.
Following tax law changes, cash donations of up to $300 made this year by December 31, 2020 are now deductible without having to itemize when people file their taxes in 2021.
The Coronavirus Aid, Relief and Economic Security Act includes several temporary tax law changes to help charities. This includes the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.
This change allows individual taxpayers to claim a deduction of up to $300 for cash donations made to charity during 2020. This deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.
Before making a donation, taxpayers should check the Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax deductible donations.
Cash donations include those made by check, credit card or debit card. They don’t include securities, household items or other property. Though cash contributions to most charitable organizations qualify, some don’t. People should review Publication 526, Charitable Contributions for details. Cash contributions made to supporting organizations are not tax deductible.
The CARES Act includes other temporary allowances designed to help charities. These include higher charitable contribution limits for corporations, individuals who itemize their deductions and businesses that give food inventory to food banks and other eligible charities. For more information, visit the Coronavirus Tax Relief page of IRS.gov.
By law, recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes getting a receipt or acknowledgement letter from the charity before filing a return and retaining a cancelled check or credit card receipt.
In January, the IRS Identity Protection PIN Opt-In Program will be expanded to all taxpayers who can properly verify their identity.
An identity pretention PIN is a six-digit number assigned to eligible taxpayers to help prevent their Social Security number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer’s identity and accept their tax return. The online Get An IP PIN tool immediately displays the taxpayer’s assigned number.
This tool uses Secure Access authentication verify a person’s identity. Taxpayers should review the Secure Access requirements before they try to use the Get An IP PIN tool.
Other ways to get an IP PIN
There are other ways to get an IP PIN if someone is unable to pass the Secure Access authentication. Taxpayers with income of $72,000 or less should complete Form 15227 and mail or fax it to the IRS. An IRS employee will call the taxpayer to verify their identity using a series of questions. Those who pass authentication will receive an IP PIN the following tax year.
Taxpayers who cannot verify their identities remotely or who are ineligible to file Form 15277 should make an appointment, visit a Taxpayer Assistance Center and bring two forms of picture identification. This is an in-person identity verification. After the taxpayer passes authentication, an IP PIN will be mailed to them within three weeks.
Taxpayers should never share their IP PIN with anyone but their tax provider. The IRS will never call to request the taxpayer’s IP PIN, and taxpayers must be alert to potential IP PIN scams.
Here’s what taxpayers need to know before applying:
- The Get an IP PIN tool will be available in mid-January.
- This is the preferred method of obtaining an IP PIN and the only one that immediately reveals the PIN to the taxpayer.
- Taxpayers who want to voluntarily opt into the IP PIN program don’t need to file a Form 14039, Identity Theft Affidavit.
- The number is valid for one year. Each January, the taxpayer must get a new one.
- It must be entered correctly on electronic and paper tax returns to avoid rejections and delays.
- Taxpayers with either a Social Security Number or Individual Tax Identification Number who can verify their identity are eligible for the program.
- Any primary or secondary taxpayer or dependent can get an IP PIN, if they can prove their identity.
- The IRS plans to offer an opt out feature to the IP PIN program in 2022.
Confirmed victims of tax-related identity theft
There is no change in the IP PIN Program for confirmed victims of tax-related identity theft. These taxpayers should still file a Form 14039 if their e-filed tax return rejects because of a duplicate SSN filing. The IRS will investigate their case and once the fraudulent tax return is removed from their account, they will automatically receive an IP PIN by mail at the start of the next calendar year.
IP PINs will be mailed annually to confirmed victims and participants enrolled before 2019. For security reasons, confirmed identity theft victims can’t opt out of the IP PIN program. Confirmed victims also can use the Get an IP PIN tool to retrieve lost IP PINs assigned to them.