UPDATED March 17th, 2021
Tax season is upon us, and while filing your taxes can be a major drag, there really is nothing better than seeing that tax refund hit your bank account. Millions of people have already filed their tax returns and seen their refunds come in, but if you haven’t yet, no worries. While you have until the April 15th deadline to file, the earlier you do it, the earlier you’ll see money in the bank. (And if you want to get your tax refund faster than a paper check in the mail, use your Branch Account and Routing numbers to receive it straight to your Branch Digital Wallet!) Here's some information on what you'll need to know in order to file your 2020 taxes.
What is a tax return?
Your tax return is the documentation that you file each year with a tax authority that reports your income, expenses, deductions, and other relevant financial information. In the U.S you file with the Internal Revenue Service—IRS—and your local or state agency.
You file a tax return each year to determine whether you owe additional taxes or will receive a tax refund, which is a reimbursement of any excess amount paid to the federal government or a state government. Since the tax return for the tax year is due April 15th of the following year, your 2020 tax return is typically due April 15th, 2021. But, the IRS just announced plans to push back the tax filing deadline about one month to May 17th, 2021.
How to file your 2020 taxes
If your gross income is under $72,000, you can take advantage of the IRS Free File program. This is a public-private partnership between the IRS and industry tax preparation and filing leaders, and it allows you to use their tax-filing platforms online to file your federal tax return at absolutely no cost to you. (Though there may be a fee for state preparation that will be disclosed.)
When you file through one of these tax-filing platforms, you’ll need the following documents, which we’ll go into more detail on later in the article:
- Income statements like W-2s or 1099s
- Any adjustments to income
- Your current filing status
- Dependent information, if needed
What’s the difference between a W-2 and a 1099?
If you were employed through an employer in 2020, no matter the length of time, you will receive a W-2 form from them that you need to include in your filing. If you have or had multiple jobs throughout the year, you’ll receive a W-2 form from each employer.
A 1099 form is like a W-2 in that it reports your income from a particular job, but a 1099 is for people who are self-employed. Be aware of what it means to be self-employed; If you do any type of contract or gig work, such as driving for Lyft, delivering for Doordash, etc., you are considered self-employed. You should receive a 1099 form from these companies. Having a side hustle or small business also counts as self-employment.
Like millions of other Americans, if you faced unemployment in 2020 and received unemployment benefits, you also will receive a 1099-G form from the government. The IRS considers unemployment benefits as taxable income, so if you didn’t have taxes deducted from your unemployment insurance benefits, you’ll have to pay them now.
What are examples of adjustments to income?
There are certain expenses, payments, and contributions that you may be able to subtract from your total income. Some common examples of this include charitable contributions, paying alimony, paying student loan interest and having self-employed health insurance. Adjustments to income are entered on your Form 1040 of your tax return, and the amount remaining after these deductions is your adjusted gross income.
This article from Quicken and this IRS resource go into greater detail on adjustments to income and how they are applied. You can learn more about tax credits and deductions here.
What’s my current filing status?
The filing status determines which rate you income is taxed at. You can fall into one of these five filing status:
1. Single - On the last day of 2020, you are unmarried or legally separated from your spouse and you do not qualify for another filing status.
2. Married filing jointly - You are married and both you and your spouse agree to file a joint return, in which you report your combined income and deduct your combined allowable expenses.
3. Married filing separately - You are married but you want to be responsible for your own taxes or you and your spouse do not agree to file a joint return.
4. Head of household - You are unmarried, you paid more than half the cost of keeping up a home for the year, a qualifying person lived with you in the home for more than half the year.
5. Qualifying widow(er) with dependent child - If your spouse died in the year you’re filing for, you can use the married filing jointly status for that year. You can be eligible for the widow(er) with dependent child status for two years following the year of death of your spouse.
What is dependent information?
A dependent is a qualifying person other than the taxpayer or their spouse who entitles a taxpayer to claim a dependency exemption. That’s a complicated way of saying if there are people who are financially dependent on you who don’t file their own taxes, you may be able to claim them as dependents and significantly reduce the amount of your income that can be taxed. Children are a really common example of this. This article from Turbotax gets into greater detail about what the requirements are for claiming a dependent.
What’s next?
If you’ve gone through this article and have all of the required information and documentation, it’s time to get those taxes filed so you can get those refunds in your wallet! And, additional stimulus checks are anticipated. If your income fell during the pandemic, filing your taxes immediately will ensure you get the maximum payment as quickly as possible.
Remember, you can use the IRS Free File if your household income is under $72,000. Add your Branch Account and Routing Numbers so you don’t have to worry about waiting for the paper check for your tax refund or stimulus payment to come in the mail.
This blog post is intended for general information purposes only and should not be considered legal, accounting, financial or tax advice.
