Q

Q

How will the coronavirus pandemic affect my taxes?

A

A

Tax Day 2020 has been moved and taxpayers now have until July 15, 2020, to file their federal income taxes and to make any necessary payments to the IRS.

Derek Silva

Derek Silva

Published April 9, 2020

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KEY TAKEAWAYS

  • July 15, 2020, is the deadline to file your federal income taxes and to pay any tax bill you owe

  • File your taxes as soon as you can: most taxpayers get a refund and the IRS needs your current bank account to send a stimulus check

  • States set their own filing deadlines, and a few have deadlines before the federal date

  • Taxpayers will be eligible for a new charitable contributions deduction worth up to $300

The deadline to file your 2019 federal income tax return is July 15, 2020. The Department of the Treasury decided to extend the normal tax filing deadline (April 15) by 90 days because of the economic disruption caused by the COVID-19 coronavirus. If you will owe a tax bill when you file your taxes, you also have until July 15 to pay the IRS before it begins to charge you late fees and interest.

We still recommend that you file your taxes as soon as possible because the sooner you file your taxes, the sooner you will get your refund. So far in 2020, 78% of all tax returns have received a refund, at an average value of $2,973. Filing now and choosing direct deposit will also give the IRS your most current bank information, so you can easily receive your coronavirus stimulus check. For help filing your taxes, try our guide to filing taxes in 2020.

Because of new legislation to combat the coronavirus pandemic, there will be some changes to next year’s taxes. Taxpayers who take the standard deduction can deduct up to $300 of charitable contributions. You can also withdraw up to $100,000 from a retirement account in 2020 without paying the normal 10% tax penalty on early withdrawals.

As the current situation changes, you can find the latest coronavirus tax updates on the IRS website.

When is my state tax return due?

The tax filing extension from the Treasury Department only applies to federal income tax returns, but almost all states (and Washington, D.C.) have extended their tax filing deadlines and payment deadlines to July 15.

Four states have tax deadlines before the federal deadline:

  • Idaho has a tax filing and payment deadline of June 15
  • Mississippi’s tax filing and payment deadline is May 15
  • New Hampshire extended its deadline for interest and dividend payments to June 15
  • Virginia’s income tax return deadline is May 1, and the payment deadline is June 1

Three states have extended their deadlines beyond the federal date:

  • Colorado has a filing deadline of October 15, but the deadline for payments is July 15
  • Hawaii’s filing and payment deadline is July 20
  • Iowa’s filing and payment deadline is now July 31

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A note to North Carolina residents: The state has extended its filing deadline to July 15, but if you owe a tax bill, interest will accrue unless you pay your bill by April 15. The state will waive late payment fees until July 15, but waiving interest would require a change in state law. State legislators are scheduled to meet again in late April.

Check with your state to find the latest information on tax deadlines. If you file estimated taxes with your state, the payment deadline for your first quarter payment of 2020 may not have been extended.

What if I need more time to file my taxes?

If you can't file your taxes by July 15, you can request a free tax extension from the IRS. An extension will give you until October 15 to file. Tax extensions are automatic, so anyone who asks for one will get one as long as they request an extension by July 15. A tax extension only gives you more time to file your return (submit it to the IRS). If you owe a tax bill, you still need to pay by July 15, even though an extension gives you until October to file your return.

States that collect income tax also offer tax extensions, but you need to apply through the individual state, not through the IRS.

Learn how to apply for a tax extension.

HSA and IRA contribution deadlines

The 2019 contribution deadline for an individual retirement account (IRA), health savings account (HSA), or Archer MSA has been extended to July 15, 2020. If you want to take a tax deduction for your contributions, make your contribution before you file your federal tax return.

Taxes on coronavirus stimulus checks

The Treasury Department will send many Americans economic impact payments, often referred to as stimulus checks, of up to $1,200 in 2020. The payments will not affect this year’s taxes for the majority of people, though some people who don’t usually file taxes may need to file a simplified return. The payment works as a tax credit for your 2020 taxes (which you file in early 2021), so it isn’t taxable income. It also won’t have much effect on your normal tax refund.

Learn more about the coronavirus stimulus checks.

Expanded retirement account withdrawals

Required minimum distributions from retirement accounts have been waived for 2020, thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. You can also withdraw up to $100,000 from a retirement account in 2020 without having to pay the usual early withdrawal penalty (of 10%). This includes 401(k) plans and traditional IRAs, some deferred compensation plans, and certain annuities.

Annual contribution limits will also be disregarded for three years for lump-sum contributions worth up to the value of your withdrawal amount. So if you withdraw $100,000 from your 401(k), you can contribute up to $100,000 into your account (spread over multiple contributions or all at once) in addition to your normal annual contribution limits.

For more advice on handling your investments, read our guide to investing during the coronavirus pandemic.

How the coronavirus pandemic may affect next year’s taxes

The income taxes that you need to file by July 15, 2020, are for 2019. The fallout from the coronavirus pandemic will not affect those taxes, because they only cover income and expenses from 2019. However, you may see some changes to your 2020 income taxes, which you will file in early 2021.

Taxes on unemployment benefits

A record number of Americans have filed for unemployment insurance (a.k.a. unemployment benefits) because of the coronavirus pandemic. Unemployment benefits are taxable income. If you get unemployment benefits this year, you will pay tax on it next year along with the rest of your income. Unemployment benefits are reported on Form 1099-G, and you’ll receive that form in early 2021.

When you file a claim for unemployment insurance, you can choose whether or not you want your state to withhold taxes. Having the state tax your payments will make filing easier next year, and you shouldn’t owe any additional tax. If you really need the full value of the unemployment checks now, you may choose for the state to not tax them. Just remember you will need to pay that tax when you file your return, so you may have a tax bill.

Other changes to income

Many people may find they need to work as an independent contractor or freelancer to make up lost income during the coronavirus pandemic. Know that this and other self-employment income will most likely be reported on a copy of Form 1099 instead of on Form W-2. You will likely receive a copy of Form 1099-MISC.

Here’s our complete guide to 1099 forms.

If your employer doesn't withhold taxes now, you may end up with a tax bill next tax season. To avoid a bill, independent contractors and freelancers may need to file estimated taxes. Estimated taxes are quarterly payments that you make to the IRS, based on the income for each quarter. Learn more in our guide to estimated taxes.

New charitable contributions deductions

Legislation to fight the economic impacts of COVID-19 created a new above-the-line deduction for charitable contributions worth up to $300 per individual. All filers who take the standard deduction will be able to take this deduction if they have eligible charitable deductions.

The itemized deduction for charitable contributions was also expanded. Now, individuals can deduct charitable contributions worth up to the same amount as their adjusted gross income (AGI). If your AGI was $75,000 then you can deduct charitable contributions worth up to $75,000. The previous limit was 50% of AGI. Corporations can now claim deductions worth up to 25% of their AGI, up from 10%.

Learn more about deducting charitable contributions.

The medical expense deduction

If you get sick with COVID-19 and have significant hospital bills, you may qualify for the medical expense deduction.

The medical expense deduction allows you to deduct any medical or dental expenses you incur that exceed a certain percentage of your AGI. On your 2020 taxes, the medical expense deduction is available for medical expenses that exceed 10% of your AGI. (The threshold for 2019 taxes is 7.5% of your AGI.)

However, you can only claim the medical expense deduction if you can itemize your deductions. A recent tax study by Policygenius, using the latest IRS data, found that only about 11% of taxpayers qualify to itemize after the 2017 tax reform, which doubled the standard deduction.

(To protect yourself from losing your income in the event you become sick with COVID-19 and cannot work, consider disability insurance. Here’s how disability insurance can protect you from COVID-19.)

Home office deduction

Taxpayers who are self-employed or who do freelance work at home — including people who get a 1099-MISC — may be able to claim the home office deduction. This allows you to deduct work expenses, including some office supplies, desk and furniture costs, some utility payments, and some renters insurance.

You can claim the home office deduction by completing IRS Form 8829. You will also need to file Schedule C, which allows you to report self-employment income. Anyone who receives a 1099-MISC or has other freelance income probably needs to complete Schedule C.

If you have your own business, including anyone who starts a business in 2020, you may also qualify to deduct business expenses. You can learn more about deductible business expenses from the IRS.

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Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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