2020 Tax Law Changes

President Trump issued an executive order to defer the payment of payroll tax between September 1, 2020 and December 31, 2020. Although Congress may pass further action to waive some or all of these deferred taxes, nothing has been passed. At this time, the payroll tax obligation will remain in full, but the due date for payment of that tax obligation has been pushed back. Businesses can opt out of the deferral.

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Generally, the amount you received from the Paycheck Protection Program will be excluded from gross income if certain qualifying criteria is met. That exclusion is dependent upon your payment of qualifying expenses, retention of employees, and compensation.

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The CARES act resets (NOL) carryback to pre-tax reform levels. Net operating losses (NOLs) generated in 2018 through 2020 can offset 100 percent of taxable income for tax years before 2021 and are allowed a 5-year carry-back and indefinite carry-forward.

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If you pay your employees from 3/12/2020 through 12/31/2020, and did not participate in any COVID-related SBA loan programs, you may be able to claim a refundable tax credit on your 2020 tax return. You must meet one of the following two qualifications:

1. Your operations are fully or partially suspended due to COVID-19, or
2. Your gross receipts decreased by more than 50 percent when compared to the same quarter in the prior year.

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The maximum amount of earned income on which you pay Social Security tax is now $137,700. When you reach that amount with one employer, they should stop withholding Social Security tax from your pay until the following year. If you work for more than one employer, and your total earnings are more than $137,700, TaxAct calculates a credit for any overpayment of Social Security taxes.

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If you qualify, you can exclude up to $107,600 of your foreign earned income from your taxable income for 2020. If you and your spouse both work in separate foreign countries and meet the qualifications, you may each be able to exclude up to $107,600.

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You may qualify for a credit equal to up to $14,300 of your adoption expenses. If your employer provides adoption benefits, you may also be able to exclude up to the same amount from your income. Both a credit and exclusion may be claimed for the same adoption, but not for the same expense. The credit is permanent and indexed to inflation.

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The child tax credit remains $2,000 per qualifying child. Phase out also remains steady at $200,000 ($400,000 if married filing jointly). Qualifying children must have a Social Security Number (SSN). If a child has an ITIN but no SSN you may be able to claim the Other Dependent Credit instead.

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This credit amount remains $500 for a dependent who does not qualify for the child tax credit. Like the Child Tax Credit, this one phases out at $200,000 ($400,000 if married filing jointly). A qualifying relative may be considered a dependent for this credit.

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If you were one of the many Americans affected by hurricanes or wildfires, the IRS may be able to help. Visit the IRS Guidance for Those Affected by Disasters page to see if you qualify.

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The deadline for excluding qualified principal residence indebtedness from income is January 1, 2021. However, the exclusion can be taken for discharges happening after that date as long as the agreement was entered into before Jan. 1, 2020.

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The Recovery Rebate Credit is designed to reconcile the Economic Impact (stimulus) Payment. Taxpayers who didn’t receive enough in stimulus funds will receive a credit on their 2020 tax return. Taxpayers who may have received more than they qualified for will not need to repay those funds.

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Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, taxpayers can deduct charitable donations of up to $300 even if they don’t itemize. Those who do itemize can deduct up to 100% of adjusted gross income, up from 60% previously.

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Although not as extensive as in 2018 and 2019, Form 1040 has once again been modified.

Form 1040, page one changes:

• Checkbox for 4 or more dependents moved to Dependents section
• Line added to report charitable contributions if you take the standard deduction

Form 1040, page two changes:

• Income tax withholding broken down to report from multiple forms received
• Line added to report estimated tax payments (moved from Sch 3)
• Line added to report recovery rebate credit (stimulus)
• Itemized Deductions

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The standard amount you can deduct from income if you don't itemize your deductions is $12,400 ($24,800 for married couples filing jointly, or $18,650 if you file as head of household).

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The Alternative Minimum Tax (AMT) exemption amount for individuals rises in 2020 to $72,900 and begins to phase out at $518,400. For married couples filing jointly, the exemption rises to ($113,400, with phase-out beginning at $1,036,800, for married couples filing jointly).

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If you have no children, your maximum Earned Income Credit for 2020 is $538. With two children, the maximum amount is $5,920, and with one child, it is $3,584. If you have three or more qualifying children, the maximum Credit you can receive for 2020 is $6,660 (up from $6,557 in 2019).

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You may be able to exclude all or part of the interest from qualifying Series EE or Series I bonds if you use the income for qualified educational expenses. You cannot take this benefit if your modified adjusted gross income is $97,350 or more ($153,500 if you file jointly, or if you file as Qualifying Widow(er) with Dependent Child).

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The American Opportunity Tax Credit income limits remain unchanged for 2020. You can claim this benefit even if the student doesn't receive Form 1098-T from the education institution. Make sure to have your TIN ready by the time you file - you can't claim the credit without it.

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The income limits increase this year to $69,000 ($138,000 if married filing jointly).

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This Federal mandate expired December 31, 2018; however, some states still require a Shared Responsibility payment.

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For persons who died in 2020, the federal estate tax rate remains at 40%. This tax only applies to estates larger than $11,580,000.

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The standard mileage rate for the use of your car or other vehicle falls back to 57.5cents per mile for business (down from 58 cents for 2019) and down to 17 cents per mile driven for medical or moving purposes (down from 20 cents for 2019). The rate for charitable travel held steady at 14 cents per mile.

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The most you can contribute to one of these plans increases to $2,750. Your spouse can also contribute $2,750 if he or she meets the qualifications. For certain FSAs, up to $500 can still be carried over to the next year.

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(1) Self-only coverage. The term "high deductible health plan" as defined in Sec. 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $1,400 and not more than $3,550, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $6,900.

(2) Family coverage. The term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $2,800 and not more than $7,100, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $13,800.

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