The continuing COVID-19 pandemic continues to lead the US and the world in changes to everything in daily life.
In response, Congress and state legislatures rushed to pass bills to ease the difficulties caused by the shutdown of so many businesses that left many people in a lurch. To help taxpayers compensate, lawmakers passed three acts with tax law changes to help:
- The CARES Act, passed in March of 2020
- The Consolidated Appropriations Act, 2021, passed in December of 2020 and signed by President Trump on December 27, 2020
- The American Rescue Plan Act (ARPA), signed March 12, 2021
The biggest features of these acts include direct stimulus payments, expanded Unemployment, and the Paycheck Protection Program for businesses, or PPP.
State And Federal Income Tax Deadlines
The IRS once again has extended the deadline for filing individual federal income tax returns to May 17, 2021. The state of Illinois has also extended the deadline for filing state income tax returns to the same date.
The pandemic saw a wide swath of industries shut down almost overnight. While many work from home, others could not. For those impacted by workplace shutdowns, lawmakers widely expanded Unemployment benefits to help those who were suddenly out of work.
Because Unemployment is considered “taxable income,” you’ll have to pay income tax at the rate of 10%. This can be done in one of two ways: you can opt-in to have that 10% taken out at the time of signup, just as you would when filling out a W4 when starting a new job. Alternately, you can pay the income tax later when you file a tax return. For those unfamiliar with the process, they may have unintentionally taken on an additional tax burden on both the state and federal levels.
Direct Economic Stimulus Payments
Also called “economic impact payments,” these payments are actually an advance on a tax credit called the “Recovery Rebate Credit.” You won’t be taxed on these on the federal level but you could be on the state level.
These payments were made to individuals with incomes up to $75,000 for single filers, $112,500 for single filers as “head of household,” and married couples with up to $150,000 in combined income.
Two sets of payments were made in 2020, with the third set of payments now underway.
Early Retirement Withdrawals
During the pandemic, more than two million people needed to withdraw funds out of their retirement funds.
Ordinarily, this would trigger a 10% penalty if they were under 59½. However, under the CARES Act, you can temporarily withdraw up to $100,000 without penalty for needs that were pandemic-related. The withdrawals can be from any tax-deferred plans, including 401(k), 403(b), and traditional IRAs. However, the withdrawals had to be made by December 30th.
The money is included in your income for three years in equal amounts. However, you can pay the entire amount this year if you decide to.
If you return the money by the time you file your income tax return, it won’t have any impact on your taxes. You can also take up to three years to return the money to your accounts, and file amended returns later to collect any refunds on taxes paid. The funds will be treated as a rollover but reported as repayment on IRS Form 8915-E. The amount of the distribution will be detailed on IRS Form 1099-R.
These are just a few of the many tax changes that the IRS and the US Government have made to help those who were affected by the unexpected events brought on by the pandemic.
To learn more about how these changes affect you, your taxes, and possibly your estate plan, consult with a tax and estate planning attorney to ensure that your returns and your estate are in compliance with these unexpected changes to our tax laws.
Contact James Provenza For Estate Planning In Illinois
Ensuring that your loved ones receive what you intended includes considering tax implications. With help from an experienced Illinois estate planning attorney, you can minimize the impact of your gift before the time comes.
James C. Provenza is an estate planning attorney in Illinois with more than 25 years of experience in helping clients with their estate planning needs. He can work with you to ensure that your final wishes are carried out the way you want them. Call our firm today at (847) 729-3939, or use our online contact form.