Certified Public Accountants say they’re fielding several new questions this year from people anxious about how the pandemic, and its emergency response, impacts their filing. Tax filing season officially opened on Feb. 12, the first day the IRS started accepting returns for 2020 taxes.
“It’s going to be the most stressful tax season yet,” Kesha Jontae, an income tax strategist based in Atlanta, told NBC News.
A slew of laws passed under the CARES Act last March directly impact taxes, from expanded unemployment compensation to waivers for IRA withdrawal penalties. Customers are also wondering how to account for their stimulus checks and what the tax implications are of their remote working situations. The constantly updated guidance is keeping tax pros on their toes.
“It's taking a little bit longer to figure out exactly how the new laws that literally just got passed about a month ago are going to affect their tax return,” Jontae said.
It’s even changing how tax professionals meet their clients. Early in the pandemic, CPA Edward Arcara’s office in Buffalo, New York, quickly adopted social distancing measures, like meeting clients in parking lots for document hand-offs and conversations. Now that it’s been nearly a year, they’ve became slightly more sophisticated.
“Although we are still doing the parking lot meetings, we are asking our clients to use our secured drop box in our vestibules. We have graduated to Zoom and Teams meetings but it still is quite new for some people,” Arcara said. “Never a dull moment around here.”
Here are the questions CPAs say customers keep bringing up:
Are stimulus checks taxed?
No. “The payment is not income and taxpayers will not owe tax on it,“ the IRS said.
I never got my stimulus check, or it was less than it should be. How can I get it through my taxes?
Filers can claim any missing economic impact payments by requesting a Recovery Rebate Credit. This includes the additional $500 and $600 payments for dependent children under 17.
Do I owe taxes on my unemployment benefits?
Unemployment income is taxable. If you didn’t elect to have taxes withheld, you will owe money on it at tax time.
I’m now working remotely. Can I take the home office deduction?
For the most part only the self-employed can take a home office deduction. If you have a dedicated work space set aside in your home for a "side gig," you can deduct home expenses directly related to that self-employed work.
I worked remotely, out of state. Do I have to pay state taxes twice?
It depends. If you worked remotely in a different state for more than 183 days, or about 6 months, it’s likely you’ll have to pay taxes in the state where you were originally based and in your remote location. However if your state has a reciprocal agreement with your home state, you can avoid double taxation. And if you’re among those who decamped to Texas or Florida, which have no state taxes, you won’t owe taxes in those states.
Can I deduct business expenses paid for with a loan from the Paycheck Protection Program?
If the funds were used to pay for eligible expenses under the PPP program, such as rent and utilities, they are deductible. The IRS released new guidance on Jan. 6, reversing earlier guidance — a relief for small businesses, but a headache for their accountants.
How are early retirement withdrawals affected?
The CARES Act waived early withdrawal penalties on savings plans such as a 401(k) or IRA for people under 59 and-a-half. But the money still counts as ordinary income. Filers have three years to put the funds back and get a refund on any taxes paid.
The opening of tax season was pushed back a couple of weeks, do I get more time to file?
No, it’s still April 15.
With the compressed season, should we expect delays at the IRS?
The IRS is staffed at a slightly lower level than normal, but says it stands ready. The agency highly encourages e-filing this year, as paper returns could face added processing delays. For fastest refunds, e-file and use direct deposit.