2021 Tax Season Kicks Off

The Internal Revenue Service announced that the nation’s tax season will start on Friday, February 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns.

The February 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

To speed refunds during the pandemic, the IRS urges taxpayers to file electronically with direct deposit as soon as they have the information they need. People can begin filing their tax returns immediately.

“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop to prepare for this as well as delivering Economic Impact Payments in record time,” said IRS Commissioner Chuck Rettig. “Given the pandemic, this is one of the nation’s most important filing seasons ever. This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible.”

Last year’s average tax refund was more than $2,500. More than 150 million tax returns are expected to be filed this year, with the vast majority before the Thursday, April 15 deadline.

Overall, the IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit if there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.

Economic Impact Payments

Round one and round two economic impact payments (EIP) are reconciled on the 2020 tax return. The EIPs were an advance. If the client received less than he or she should have, they will be able to claim an additional EIP credit on their 2020 return. Clients who received too much of an advanced rebate because the payment was based on their 2019 (or 2018 for the first round payments if the 2019 return was not yet filed) income do not need to repay the excess when they file their 2020 tax return.

Sick and Family Leave Credits 

Self-employed individuals may be entitled to sick leave and/or family leave credit on their 2020 Form 1040.  If the self-employed person was instead an employee, The Families First Coronavirus Response Act required the employer to pay the affected employee their regular rate of pay for ten days of sick leave (limited to $511 per day) or pay them 2/3rds of their regular pay rate for ten weeks of family leave (limited to a maximum of $200 a day). The government reimbursed the employer through payroll tax credits the amount paid to the employee. The self-employed individual (or a partner in a partnership) is entitled to the same sick and family credits on their individual tax return. The credit is calculated on the new Form 7202. Check IRS FAQs 60 to 68, titled “Specific Provisions Related to Self-employed Individuals” for the rules. 

Earned Income Tax Credit

The Consolidated Appropriations Act, 2021 allows taxpayers to use their 2019 earned income if that results in a larger EITC. Taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with this credit.

Form 1099-NEC

Beginning in 2020, individuals may receive Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if you performed certain services for and received payments from a business.  Because of the due date change for nonemployee compensation, taxpayers had to begin separating nonemployee compensation using two Forms 1099. This change not only caused a lot of confusion for business owners and taxpayers, but it also caused the IRS to mistakenly treat forms received after the January 31 deadline as late returns. The IRS has brought back Form 1099-NEC to separate nonemployee expenses and clear up the confusion.