2020 Year End Tax Updates

This past year has been like no other. Obviously, the Covid crisis has been front and center in politics and the economy. The other complication is the tax code. Because of Covid and the fall out of the economy, there have been many tax law changes that took effect in 2020. In this newsletter, I want to highlight some of the more significant changes.

Stimulus Payments

One of the first things the government did was issue stimulus payments to taxpayers. Most taxpayers were eligible to receive either $1,200 if they were single or $2,400 if they were married. These payments were based on an income threshold for single filers of the full $1,200 if their income did not exceed $75,000 and married filers $2,400 if their income was less than $150,000 based on the taxpayer’s 2019 income. These were advance payments for 2020 so if you did not receive a payment in 2020 because either your 2019 income was too high or because of some other unforeseen event, you could still be eligible to receive the stimulus payment when you file your 2020 tax return as long as you qualify within the income limits. Stimulus payments are not considered income thus not taxable.

Unemployment Compensation

One of the other major pieces of legislation passed by Congress was to add federal unemployment benefits to stimulus relief. The government issued monthly $600.00 checks to unemployed taxpayers in May 2020 through November 2020, and then they were reduced to $300.00 per month in December. For tax purposes, these payments are taxable on the federal level, though in most states this is not taxable.

Business Relief

There was also relief afforded to businesses, especially small businesses. The two major relief bills passed into law were the Paycheck Protection Program, commonly called the “PPP” relief bill. The PPP bill was the cornerstone of the business relief bill; this gave eligible small businesses a forgivable loan as long the loan proceeds are used for at least 60% on payroll. If the loan is deemed forgivable, the canceled debt is not taxable. The other major business relief bill passed was the Emergency Injury Disaster Loan program, commonly known as the “EIDL” relief bill; the EIDL program payment issued was actually in the form of a grant (up to $10,000), and thus does not have to be paid back nor is it taxable.

Other stimulus laws were passed into law with their own tax implications. If you have any questions regarding any taxation of the Covid related legislation, please to not hesitate to contact our office to get an answer. I look forward to helping you through this complicated tax time, and I hope you and your family are healthy and safe.