Filing taxes will look different for a lot of people next year. The pandemic was the catalyst of lay-offs and furloughs, and the number of Americans needing unemployment benefits sky-rocketed.
Being unemployed or furloughed changes the way you file, as well as what you’re expected to pay in state and federal taxes. To be sure that you get the most out of your return next year, you need to know what is taxable and which deductibles you qualify for.
Tips for Filing while Furloughed
You should file your taxes, even if you are unemployed. Receiving any income that exceeds $12,200 for a single filer must be filed. Otherwise, the IRS can (and likely will) implement penalties. Filing late, as usual, will also subject you to interest charges. It also may be in your best interest to file early to receive your return as soon as possible.
There are a variety of tax breaks, or deductibles, that you likely qualify for now that you didn’t before.
- Earned Income Tax Credit: EITC comes in handy for taxpayers that had income before unemployment benefits. If you had low or moderate income for the year, you can claim this deductible.
- Retirement Savings Credit: You may be allowed some credit for eligible contributions to an IRA or employer-sponsored retirement plan. This credit has a max of $2,000 for single filers and $4,000 for joint filers.
- Child Tax Credit: You can get $2,000 per child under your care. The child must be under the age of 17 to be eligible. In some cases, you may be eligible for additional credit ($1,400 per child).
- Child and Dependent Care Credit: You may spend a lot of time looking for work and have to pay someone to care for your child. If you did, you could be eligible for up to $3,000 in credit.
Knowing what income is taxable and what to make note of is equally important as the deductions.
- Severance Package: Termination income is fully taxable and should be reported when you file. This also includes unused PTO and sick days, which is reflected on your W-2.
- Unemployment Income: It’s important to report everything that you’ve earned, including unemployment benefits. You can find the exact amount that you received by referring to Form 1099-G.
- Self-Employment: If you had to do any kind of contract work or odd-jobs due to being furloughed, you must fill out Form SE as you are considered self-employed. This means that you also need to pay Social Security and Medicare taxes. You can read more about filing as self-employed here.
Filing late while Furloughed
If you were unable to meet the filing deadline, it is likely that you now owe the IRS due to penalties. For next year, you should file as early as possible to prevent any additional charges.
Sometimes circumstances that are out of our control cause us to delay filing. This is completely understandable and you shouldn’t be penalized for that. If you know in advance that you will need more time to file, you can apply for an extension. The extension will give you an extra 6 months to file your taxes; you can file at any time during those 6 months. This will prevent any further disciplinary action from the IRS. You can read everything you will need to know about extensions here.
What if you owe taxes while furloughed?
Finding yourself in tax trouble while you’re not working can be a scary time, but it doesn’t have to be. There are tax relief programs such as the Fresh Start Program and companies like TaxRise that are available to assist you. You have options for resolving your debt within your means. It is even possible you could wipe out a majority of your debt if you’re eligible.
To learn if you’re eligible for the Fresh Start Program, click here.
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.