The IRS guidance we have been waiting for regarding tax returns with unemployment claims that were filed prior to the American Rescue Plan has arrived.
IRS issued a press release yesterday, Wednesday, March 31, stating that they are taking steps to identify and recalculate returns that are eligible for the $10,200 unemployment income deduction under the third stimulus package, but filed before the provision was passed. You can read the online press release here.
Once the new AGI is calculated, IRS will automatically issue refunds , or apply available funds to money that is owed. This takes the burden off early filers who might have otherwise had to file amended returns.
The announcement of an extension for filing and payment of taxes this year does give people some breathing room as far as sorting out some issues brought about by the stimulus package that passed after the start of tax season, though we are still waiting guidance on some issues, as well as software updates to address the unemployment benefit deduction.
Here is what we can tell you:
Business Bookkeeping Services does not have any information about individual clients’ stimulus payments.
IRS issued a press release today, March 22, announcing the disbursement of more stimulus payments. Direct deposit payments should be in bank accounts by March 24, 2021. For those without direct deposit, you are advised to keep an eye on your regular mail for paper checks and/or prepaid debit cards. Visit the online press release here for more information about what to look for so you don’t accidentally throw it away!
If you think you are eligible for a payment and have not received it yet, you can check the Get My Payment tool on IRS.gov on to see if the your payment has been scheduled. The site has detailed information and easy-to-follow instructions.
Any payments you received from the three rounds of economic stimulus are not taxable, but they must be reported on your returns (Rounds 1 & 2 for 2020; Round 3 for 2021). Because of this, everyone needs to keep a record of these payments, including the amount(s) you received and when. No one wants to backtrack at the end of the year to try and find information from 10 months before, so save yourself the trouble and start a tax folder for 2021 right now.
For people who received unemployment benefits in 2020 and filed their taxes before the American Rescue Plan stimulus package passed, IRS is reinforcing previous guidance asking taxpayers not to file amended returns. The plan to address these discrepancies is through software designed to identify and correct returns that are eligible and automatically issue refunds. We do not, however, have a timeline for when this software will launch.
The recent notices from IRS have come while we continue to await guidance from Massachusetts on how to handle the $10,200 stimulus unemployment income deduction at the state level. We are continuing to move forward with what we can in the meantime.
Don’t forget to start your tax folder for next year! Hopefully some things will be back to normal by then, but you will still need to know how much stimulus money you received this year.
Your paycheck holds a lot of important information, but for most people, as long as the money is coming in, the actual paystub is out-of-sight and out-of-mind. The fact is, your paystub can be the difference between a tax refund or bill at tax time, as well as a playing a key role in getting a loan, or even verifying your identity in the fight against tax fraud. Below are the Top 3 Reasons why it’s a good idea to make sure you have access to your paystubs, either online or in hardcopy, and why it’s important to check them periodically.
Getting a Refund vs. Owing Money at a Tax Time: Changes in tax laws, marital status, or even a slight bump in your income that puts you in a higher tax bracket can unwittingly leave you owing money at the end of they ear when you used to see a refund. The best way to prevent this from happening is to periodically look at your paystub to see exactly how much is being taken out of each one based on your “withholding allowances.” Unfortunately, withholding is one of those things that is usually set up on the first day of a new job as part of the paperwork, and never looked at again. There are basic guidelines about who should claim how many allowances based on your number of dependents, Head of Household status, but with so many people working second or part-time jobs, or joint filers with spouses who work, the standard guidelines don’t always make sense if you want to avoid owing money at tax time. See our previous post about where on your paycheck you’ll find your withholding elections, and if too much or too little is being taken out every month, you should fill out a new form W-4. The sooner you do it, the smaller the adjustment needs to be to rebalance your tax debt to your preference.
Identity Theft & Fraud Prevention: With the widespread tax fraud across the country this year—particularly with respect to unemployment, paystubs have taken on even greater importance. As efforts increase at both the state and federal level to guard against tax fraud, paystubs are among the documents being requested to verify identity. For this reason, we are urging clients to make sure they have a copy of their last paystub of the year readily available—either electronically or in hard copy. We have seen instances where processing tax returns has been denied until these documents are produced.
Income Verification: There are seemingly mountains of documents that lenders require when applying for a loan—whether it’s a mortgage, Home Equity line of credit, or a personal loan. Paystubs are just part of the equation, but lenders want to know that you’ve got money coming in so you’ll be able to pay them back for the money going out. Depending on the frequency with which you get paid, they may ask for two or more paystubs, but regardless how many, they must be the most recent ones. Having easy access to your paystubs is one step toward making the process easier.
The passage of the most recent stimulus package —The American Rescue Plan— is good news for most taxpayers. However, particularly for those who received unemployment benefits in the last year, implentation of the bill after the start of tax season is creating some confusion.
Shortly after the president signed the Act, IRS issued a statement indicating that a software update will be installed to address any potential issues with 2020 tax returns. In the meantime, the main takeaways with regard to unemployment are:
The American Rescue Plan includes a retroactive benefit that will make the first $10,200 of unemployment income from 2020 non-taxable for individuals who earned less than $150,000.
IRS is urging taxpayers who are eligible for this benefit to delay filing pending the software industry update that will account for the adjustment.
Taxpayers who have already filed their 2020 returns should also wait to see if an amended return will be necessary.
For our clients who meet the eligibility requirements of the unemployment provision:
If we have already processed your taxes and it is determined that an amended return is necessary, the update will be filed after April 15th, per IRS guidance.
If we have your information and/or your documents are in progress, we will be holding your return pending the Federal and State software updates before filing.
If you have any questions about the unemployment provision in the most recent stimulus, IRS has posted more detailed information here.
We continue to encourage everyone to use the client portal for the safest transfer of documents, but are happy to be able to provide alternatives to accommodate what works best for you!
Sending Us Hard Copies of Your Documents?
Priority Mail is best! The U.S. Post Office offers free tracking with Priority Mail, and has the best rates for anything under two pounds. We do NOT recommend sending via FedEx. Our FedEx delivery person often leaves packages in the main building lobby rather than bringing them to our office.
Reminder:We do not need your medical receipts, only the total you spent if you think you have enough to deduct.
We have a secure lockbox set up just inside our office door, along with hand sanitizer, pens, and large white envelopes if needed. Please do not put anything through the mail slot, as we cannot guarantee the safety of your information unless it is in our locked dropbox.
Make sure your documents are sealed in an envelope with your name on the outside before placing in the locked dropbox. The box is emptied and the area sanitized every half hour!
Your Returns are Ready for You to Sign. Now What?
Once we have completed your returns, we will give you a call, and you can choose to have us send them to you via Priority Mail, or you can come to our office to retrieve them.
If you choose to come to our office to pickup your tax return:
Please call us from the parking lot when you arrive.
We will place your documents on one of two desks (A or B) just inside our office.
Once you know which table your documents are on, you may enter the office to retrieve them.
You may opt to take your return back to your car to look over and sign before leaving. However, we recommend that you take your return home to review before sending the signed copy back to us for filing.
Paperless Bill Payment
Did you know you can pay your Business Bookkeeping Services invoice online? We have a secure payment gateway which can be accessed from the homepage of our website for your convenience. You can pay your invoice by credit card through this link instead of writing a check! Easy.
Another strange tax season is upon us, and with a keen focus on keeping our staff and clients safe and healthy so we can continue working, we have put safety measures in place for folks who need to visit our office to drop off their documents. We thank you in advance for your understanding and patience while we all await a time when we can see each other face-to face.
In the meantime, if you must come to our office, kindly follow the protocol below:
Please put on a mask before you come in to our building.
When you enter our office space you will immediately see a table with a box, some pens, 9 x 12 envelopes, and instructions.
If you have questions, please put them in writing and include them with your documents. Staff will not be able to answer any questions at drop off.
If you have brought your documents in a folder, please put them in an envelope, seal it, write your name on the outside and place it in the box.
If your documents are already in an envelope, just make sure your name is on the outside and place it in the box.
The drop box will be emptied, and the area sanitized, every half hour.
Staff will not be available to assist you at drop off, so please do not go past the table or enter any of the offices.
Kindly be patient. Once we have your information, you can rest assured we will contact you to address any issues, or to arrange for you to sign and pick up as soon as we can.
We appreciate that it can be frustrating if you just have a quick question you need answered, but we ‘ll be much better equipped to address your specific question after we have reviewed all of your information for this year. For now, avoiding any in-person contact between clients and staff is the best way we can provide you with the service you deserve by keeping everyone safe so we can stay open.
“We’re open and processing mail, tax returns, payments, refunds and correspondence. However, COVID-19 continues to cause delays in some of our services. Our service delays include:
• Live phone support • Processing tax returns filed on paper • Answering mail from taxpayers • Reviewing tax returns, even for returns filed electronically”
In other words, pretty much everything is delayed, and trying to get answers will continue to be difficult for the foreseeable future, particularly as processing this year’s returns gets underway.
With many IRS employees continuing to work remotely, the mountains of paper mail delivered to their regular locations have continued to pile up. the few employees allowed in those buildings are doing their best to address as much of the backlog as they can, but it’s slow going without the manpower on site. as It’s kind of like the sports stadiums we are seeing designed to hold tens f thousands of people, with only a few hundred in the stands.
With the fallout from COVID-19 affecting every taxpayer this year—whether it’s a change in employment status or pay fluctuations amid the pandemic—we wanted to take a minute to once again stress the importance of checking your pay stubs on a regular basis to ensure that your withholding is as you want it to be.
Many of our clients experienced sticker shock when the Tax cuts & Jobs Act of 2017 skewed the tax tables, and their withholding elections left them unexpectedly owing money.
We know that most people receive their payroll check through direct deposit, and paystubs are usually issued by e-mail these days. As a result, most pay stubs go unchecked, and unfortunately by the time the withholding deficit is discovered it’s already the following year—and too late to do anything about it.
To avoid this, we recommend making a habit of checking your pay stubs every month to verify the withholdings are per your instructions—even if you are not not paid via direct deposit.
And if you need to make adjustments, you can contact your HR benefits people to fill out a new w-4.
Let’s face it: we’ve just said goodbye to a year like no other. And though it’s “officially” over, we are continuing to adapt our best practices to align with the changing tax laws, as well as the most up-to-date health and safety guidelines. With the benefit of our clients in mind, we’ve put together the list below to help ensure that we keep things running smoothly and efficiently this season, despite the limitations we are all facing.
You do not need to contact our office to request that a Tax Year Organizer be sent to you. Tax Organizers will be delivered by regular mail or uploaded on the portal, depending on how you have received them previously. Our only automated delivery method for organizers is via the portal. Keep an eye out for an e-mail from Secure File Pro indicating your organizer has been placed in your portal folder.
Make sure you are on our e-mail list! We know that everyone gets too many e-mails, but this is still the fastest and most effective way for us to communicate with clients, and we generally send no more than two e-mails per month. If we do not currently have your preferred e-mail address, then please take a minute to sign up for our email list or update your information through the opt-in link on our website home page or by sending your first and last name and e-mail address to: [email protected].
We will begin e-filing on January 27, 2021. With IRS staffing shortages, processing could take longer than usual this year, so we are aiming to get a jump on the season by starting our clients’ e-filings as soon as we can.
Provide us with all your information, all at one time. Missing or incorrect information, or information that comes in piecemeal causes hiccups that may cause your return to get pushed back. The Organizer we send out is the best tool we have to aid us in processing your return. The more accurate and complete the organizer is, the quicker we can file your return.
Be sure to include Our 2020 Income Tax Checklist with your paperwork. We created this checklist because we have learned that if a return is delayed because any of these items are missing it can take up to nine months to correct since IRS access is limited due to offices being closed and employees working remotely. This form must be completed in order for us to process your tax return.
Collect any questions you have about your return and include them in writing with your organizer. Unfortunately, we are not in a position to answer questions outside of the time that we are dedicating to your individual return. For this reason, we ask that any questions you have be submitted on a separate sheet along with your paperwork. That way we can address them and provide answers while we have your information in hand and eliminate the guesswork!
Keep your medical receipts—literally. If you think your medical and dental expenses in 2020 might be high enough to deduct, please add up what you spent, and provide us only the total amount. Sending us your receipts can not only jeopardize the privacy of your records, but it will delay processing your return since we do not have the staff to add them up on your behalf.
Visit our website for office updates. Due to the pandemic we have changed how we operate in this new climate. To keep our employees and clients safe and minimize the potential spread of the COVID-19 virus, we will not be having in person appointments, but we will be establishing a safe and secure drop off and pickup protocol for you and will post it on our website. Our newsletter will be the main line of communication as the COVID regulations for businesses change, so please make sure you are on the list!
Please be patient. We have put a lot of thought into how we can tackle this tax season with as few speedbumps as possible. And like so many of you, we—and the IRS— continue to work within the limitations of health and safety guidelines. We sincerely appreciate your patience as we work to get your returns taken care of quickly and accurately!
We are confident that these steps will help all of us get through this unusual tax season with ease.
Over the years, we’ve learned a lot about what the IRS looks for on your tax return. We put together the list below for our clients to help them avoid the pitfalls of missing or inaccurate information that can delay tax returns by 6 months or more. Especially during the continuing pandemic at the time of this posting, since the IRS is working with limited staffing, you’ll want to make sure the information you provide is accurate and complete. We encourage you to “check off” the items on the list before submitting your tax paperwork to ensure a smooth and efficient filing!
STIMULUS PAYMENTS If you received a stimulus payment in 2020 and January 2021 your tax professional needs to know the amount of the payment you received. $________________ This payment is not taxable but the amount must be reconciled on your tax return.
UNEMPLOYMENT If you collected unemployment benefits in 2020 you will receive a 1099-G form in the mail in by January 31, 2021. We have included an image of the 1099-G form below for reference. FRAUD ALERT for Massachusetts residents: If you receive a 1099-G form and did not collect unemployment benefits please contact the Massachusetts Department of Unemployment Assistance (DUA) at 617-626-5647 immediately! Likewise, if you did receive unemployment benefits and do not receive a 1099-G form, again, you will need to call MA DUA at 617-626-5647.
ESTIMATED TAX PAYMENTS If you made estimated tax payments in 2020 please provide your tax preparer copies of the cancelled checks. We have seen issues this past year with these checks not being cashed, and not being applied properly. If we have copies of the cancelled checks we can speak with IRS on your behalf to resolve any issues that may arise.
FORM 1095A (Health Connector for Massachusetts Residents) If your health insurance is through the Massachusetts Health Connector please provide your 1095A. This form will be mailed to you by January 31, 2021. If your insurance is through the health connector, IRS will not process your tax return and delay your refund. Please see a copy of the 1095A form below for reference. You can also obtain your form online at welcome to health connector | health connector (mahealthconnector.org)
RENT PAYMENTS DURING COVID If you paid rent in the last calendar year please indicate the total rent you paid in 2020 $____________.
NEW BABY IN 2020? Congratulations! Please make sure to provide the baby’s date of birth and social security number. This information is necessary to determine if you qualify for an additional stimulus payment, as well as the normal credits for a child.
DEPENDENT CHILD FILING HIS OR HER OWN TAXES THIS YEAR? Tax preparers need to know if you have dependent college-age kids who are filing taxes and “claiming” themselves under their Social Security Number. This will trigger the IRS to disable your ability to e-file your own return, forcing you to file on paper and have your return delayed by as much as 6 months.
PERSONAL CONTACT INFORMATION Have you changed addresses, phone numbers, e-mail addresses, or jobs since last year? Make sure your tax preparer has your up-to-date information!
Below is an example of Form 1099-G. Individuals who collected unemployment in the last year should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.
Below is an example of Form 1095-A. Individuals who are insured through the MA Health connector should receive this form in the mail by January 31, 2021, and must include it with their tax paperwork. Please note: This is for reference purposes only and cannot to be downloaded, reproduced, or used for filing.