While upwards of 35 million people have not received their tax refunds for 2020, the upcoming tax season could be just as complicated with ripple effects of COVID lingering into the fall.
Among the issues that will complicate things is the presence of that third stimulus check, which was not factored into 2020 returns. The stimulus payments are not considered taxable income, but accountants warn against including it as such. That was an issue last year, which prompted many to seek out refunds after filing.
“It’s the third year of complex implications from the pandemic, including tax changes, life changes, society changes and all that goes with it,” explained Mark Steber, chief tax officer for Jackson Hewitt.
The advance on the Child Tax Credit will also complicate things. It could have an impact on final returns, with half of the money in that tax credit being fronted by the federal government in monthly, recurring payments.
Unemployment benefits will also make things tricky, as well as working remotely for workers who want to take advantage of tax breaks and benefits related to work from home.
Experts say the answer is simple: Do a mid-year tax checkup to determine where you stand. Break down where you are, and look at where your income might end up- then do the math on what you’d pay in a normal year. You can see where you stand now, and avoid headache down the road with a surprise expense that could’ve been planned. Another important step is keeping important documents handy. For example, extra payments through stimulus or advances on tax credits should be retained, so that final documentation is easy to produce.