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A run-down on rumors


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Some info floating around, and I want to make sure it is for real:

  1.   If someone does not qualify for EIC in 2020, but qualified in 2019, they will be deemed as qualifying for 2020. 
  2.   In fact, if their EIC calculates greater in 2019 than in 2020, they will be entitled to the higher amount on 2020 tax return.
  3.   On a joint return, the "above-the-line" charitable deduction is $600 rather than $300.
  4.   For stimulus payments, all amounts received are calculated using 2020, even if some of the stimulus was not received until 2021.  (For some reason, the automatic stimuli are supposed to be over and done by Jan 15th possibly to accommodate this.

I'm sure there are sources to research, but I even wonder whether they are up-to-date.

 

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1. For EIC purposes, a tax payer may use his 2020 earned income OR his 2019 earned income IF IT IS HIGHER, to calculate his 2020 EIC.

2. See 1.

3. $300 for all filing statuses on 2020 returns, except $150 for MFS. (I don't think the law gives 1/2 to each MFS, so there may be an update on that). 2021 returns get $300 for all filing statuses, except $600 for MFJ. Think of it as $300 per return for 2020 (MFS return splitting a MFJ return in half) and $300 per taxpayer/spouse for 2021.

4. The Recovery Rebate Credit is a 2020 credit. The EIP1 and EIP2 were advances on a 2020 credit. Both EIP1 and EIP2 will be reconciled on the 2020 return. (The law did say the EIP2 is to go out by 15 January 2021.) Tax Payers might receive a positive refundable RRC; but the RRC will not go below zero, so no one has to repay a RRC on their tax return.

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2 hours ago, Lion EA said:

1. For EIC purposes, a tax payer may use his 2020 earned income OR his 2019 earned income IF IT IS HIGHER, to calculate his 2020 EIC.

 

So, basically most people that collected unemployment for 9 months in 2020 will benefit by using 2019 earned income to calculate EIC (unless they made $14,800 or more on the first three months of 2020).

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Depending on where they are on the bell curve for 2020, if 2019 is higher and gives them more EIC, they can use 2019 instead of 2020. It's a choice to use 2019 if it's higher.

Per IR-2021-10: Also new this year is the option to use prior year income amounts when computing the Earned Income Tax Credit and the Additional Child Tax Credit.

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9 hours ago, Lion EA said:

Depending on where they are on the bell curve for 2020, if 2019 is higher and gives them more EIC, they can use 2019 instead of 2020. It's a choice to use 2019 if it's higher.

Per IR-2021-10: Also new this year is the option to use prior year income amounts when computing the Earned Income Tax Credit and the Additional Child Tax Credit.

I was in a NATP webinar and posed this question: What if the income was LOWER in 2019 but HIGHER in 2020 (phasing them out), would they still be able to use the 2019 to get the EIC? The answer was "Yes." 

I have military clients for whom taxable wages change drastically from year to year, depending on deployments. I once had a pilot making well over 6 digits receive EIC. Most of his wages were in a "combat zone" and not taxable Box 1 wages.

That's why I posed the question. 

Are you saying the answer was wrong? 

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Per the IRS emailed notice, it's wrong for us civilians. I know military has always been able to exclude current year combat pay, or not, whichever benefits them in a tax year. I think I first heard of it in a NYSSEA webinar. I would probably trust NATP more.... You could jump to that section of the CAA (which I'm not doing today -- big biz client) to get it from the horse's mouth.

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Just spotted it in a TaxPractice Pro webinar text. The text said IF the lookback to 2019 is elected, it is for BOTH EITC and the ACTC. And, that you may only elect to use the 2019 earned income if it was MORE than the 2020 earned income. Her CAA cites refer to ALL the topics in that webinar, but she cites Division N page 1924, Division O page 2468, Division EE page 4870, and Division FF page 4990. I'm working on a webinar for music teachers that I'm presenting tomorrow morning via Zoom, so not looking up anything not related to independent music teachers today! But check those CAA Divisions to find your answer.

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On 1/13/2021 at 1:40 PM, Lion EA said:

Just spotted it in a TaxPractice Pro webinar text. The text said IF the lookback to 2019 is elected, it is for BOTH EITC and the ACTC. And, that you may only elect to use the 2019 earned income if it was MORE than the 2020 earned income. Her CAA cites refer to ALL the topics in that webinar, but she cites Division N page 1924, Division O page 2468, Division EE page 4870, and Division FF page 4990. I'm working on a webinar for music teachers that I'm presenting tomorrow morning via Zoom, so not looking up anything not related to independent music teachers today! But check those CAA Divisions to find your answer.

Thanks so much for these details. 

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Took a NYSSEA updates webinar for three hours last night. That speaker (Frank Degen, former NAEA President and former NYSSEA President) also said you can choose to use 2019 earned income for the purpose of calculating both the EITC and the CTC/ACTC -- all or none -- only if the 2019 earned income is higher than 2020. So, I haven't read it myself but have heard it in no less than four webinars from four different speakers I admire.

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I want to make sure I understand...We calculate on the year 2019 or 2020 with the lower income, even though the calculation may give a higher EITC in a different year because of change in children or other qualifiers.  Is this correct?

I did read your response above, but could not come away with a clear-cut yes or no.

This pretty much means that this is NOT a good year to switch tax software.

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If you use the same software, the calculation should be automatic. If you use a different software or have a new client, you should have a place to enter 2019 earned income. By the way, if married couple were not married last year or didn't file MFJ, you enter 2019 earned income so you have their combined 2019 earned income for both of them.

Yes, you would use 2019 earned income if higher for both EITC and CTC/ACTC if, and only if, it gives a lower tax liability due to the combination of EITC/CTC/ACTC resulting in higher credit(s). That's the purpose of the law, knowing 2019 may've been a more typical year and that 2020 might have very little income and correspondingly lower credits. It's to help increase refunds to low-income tax payers.

Work your way through the paper forms to see how it flows. Then practice in your software to know how/where you need to enter to make the results look like you expect. You can be a hero to your clients if you increase their refunds for such a disastrous year.

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