Do You Have Children?
If you have children, file your 2020 taxes ASAP to take full advantage of the improved Child Tax Credit (CTC). This is money that could be in your pocket starting in July! Learn more about the CTC, below.
Interested in property taxes? Follow this link for information on property taxes.
2020 Tax Year
Here are some things to know about filing and paying your 2020 taxes.
- It's been announced that the federal and Vermont state tax return and payment deadlines have been extended. They are now due May 17, 2021. This means that the Renter Rebate, Homestead Declaration, and Property Tax Credit form are also due May 17.
- We recommend that you e-file your return if at all possible. File your tax return as soon as possible. This is because:
- If you are getting a refund, you will get it in your hands faster.
- With identity theft a constant problem, it's a good idea to file your tax return before the “bad guy” tries to.
- See information about the improved Child Tax Credit below.
- File your taxes for free online. See our Tax Filing Help page for details.
- Get help filing your taxes. Do you have a low or moderate income? You may qualify for free help to file your federal tax return and apply for a property tax adjustment or renter rebate. Learn about the VITA, TCE and AARP tax preparer programs on our Tax Filing Help page. They will operate differently than in past years because of the COVID-19 pandemic. Call a site near you to find out how to make an appointment. Plans may change at the sites during the tax season. It depends on local conditions, the health and well-being of volunteers, and agency policies.
- If you are a low-income Vermonter, contact us at the Vermont Low-Income Taxpayer Clinic (LITC) by filling out our form or calling 1-800-889-2047 if:
- you are having a hard time managing or paying on an existing tax debt, or
- you are expecting to owe a tax debt in the near future.
- Read about the federal government's Economic Impact Payments (EIP) / stimulus checks. There are three rounds of payments. If you did not get one or more stimulus payments and you think you were supposed to get them, you can claim the "recovery rebate" on your tax return. Learn more about the EIPs and the recovery rebate. Ask for tax filing advice about this process before you send in your return.
- Unemployment benefits and your taxes: Normally, unemployment compensation is taxed. But if your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan excludes from income up to $10,200 of unemployment compensation you got in 2020. This means you don’t have to pay tax on 2020 unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If you have already filed your 2020 taxes, the Internal Revenue Service (IRS) suggests that you should not file an amended return at this time and wait for more guidance. If you have not yet filed your 2020 taxes, the IRS will soon give updated instructions on how to report unemployment income on your 2020 tax return. You can ask the Department of Labor to withhold federal and state taxes from your weekly benefit if you’d like. Learn more about how unemployment benefits are taxed by federal government and by the State of Vermont.
- Advance Premium Tax Credit – Health insurance subsidies: The American Rescue Plan states that any excess premium tax credits paid in advance to subsidize your health insurance plan are not required to be paid back and are waived. This is important for families whose income in 2020 came out to be more than they estimated – for example if they received unemployment or some other benefit that pushed their income up. They will not be required to pay back the extra financial help they got in tax year 2020. (Also, the legislation caps the percentage of household income that can go toward paying for a health insurance premium at 8.5%. This means many Vermonters will be eligible for more financial help to pay for these health plans.)
- A note about renter rebates and landlord certificates. Money directly paid to the landlord from the Rental Housing Stabilization Program or the RHSP Money to Move Program should not be entered as subsidy from the government or as rent paid by the tenant. Landlords should not include rent received from these programs on the landlord certificate, LC-142, line 3 - total rent paid for the calendar year. See the Vermont Department of Taxes website for details. Follow this link for Renter Rebate information.
- Don’t Miss Out on This Money!: The Property Tax Credit and the Renter Rebate
- See the Taxes section of our website for many other tax topics.
Filing an extension
Both forms will ask two questions that you can answer based on last year's return, the current filing year's W-2, or your estimated payment record for schedule SE filers (self-employed people).
The first question is: What is your estimated tax liability? You can write in the amount of tax owed based on your previous year's return if your income and tax rate remained the same.
The second question is: How much have you previously paid in estimated tax? This can be found on their W-2 or can be estimated based on last year's return. Schedule SE filers should be keeping track of their estimated quarterly payments.
It’s important to understand the limitations of an extension -- and the penalties and interest you may pay.
Generally, if you file a tax return that shows you owe tax (what we call a "deficiency") you will be subject to penalties and interest from the May 17 deadline instead of the October 15 extension deadline. This means that while you would avoid the failure to file penalty (a late filing penalty), there is still:
- a "failure to pay penalty" of one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full. (The due date is May 17.)
- interest which generally accrues on any unpaid tax from the due date of the return (May 17 even with a timely extension filed) until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3 percent. Interest compounds daily. Right now it is 5%.
Improved Child Tax Credit
The American Rescue Plan expands the Child Tax Credit (CTC) for tax year 2021 and will provide advance payments starting in July 2021. The legislation also increases the credit to $3,000 per child under 18 (or $3,600 per child under age 6). Even if you don’t file taxes, you’re still eligible for monthly child payments.
- The IRS will use the information on your 2020 tax return to determine if you meet the income limits and how many eligible dependents you have. If your 2020 return is not filed yet, IRS will use information from tax year 2019. You should file a 2020 tax return ASAP if you have not done so yet, as this will give the IRS the most up-to-date information to send out these advance payments.
- The filing deadline for tax year 2020 is May 17, 2021, however, you can still file after the deadline to ensure IRS has the most up-to-date information to send you payments.
- The IRS has created an online portal (website) for families to provide information. Find it here on the IRS website. If you aren’t required to file a tax return, you can give the IRS your information on the online portal. Later in the year, if your family has a new baby in 2021 or your income has changed, another portal will allow you to report those kind of changes, since they will impact your Child Tax Credit amount. We’ll post that link when it is available.
- There are income eligibility requirements. The more money you earn above an adjusted gross income of $75,000 for single tax filers, $112,500 for head-of-household filers, and $150,000 for married-filing-jointly filers, the more the credit amount phases out.
- In order to claim a child for this credit, there is a seven-part test. AGE (under age 18 now), RELATIONSHIP/ DEPENDENCY test, SUPPORT (you provided more than half of their financial support), CITIZENSHIP child must have a SSN, RESIDENCE i.e. you must be the custodial parent (the child lived with you more than 6 months of the year) Visit this IRS page to see if you are eligible.
- Other CTC changes include:
- Half of this credit can be paid to you in advance. The IRS will be sending payments out from July to December 2021. (Go to the IRS website if you don’t want advanced payments.)
- In the past, to get a CTC refund, you had to have earned income of $2,500 or more. Now there is no requirement to have any earned income.
- The entire credit is refundable. This means that if you owe no tax, then you get the full amount of the credit as a refund.
- For some lower-income families, any excess CTC amounts received will not have to be paid back when the family reconciles the advance amount on their 2021 return. (For example, if you earned more than expected in 2021.) This applies to families with adjusted gross incomes below $40,000 for single return, $50,000 for head of household, and $60,000 for joint filers. Above these thresholds, the amount that would need to be repaid is phased up before an upper limit of $80,000 on single returns, $100,000 on head-of-household returns, and $120,000 on joint returns.
- NOTE: This is not a permanent change to the tax code and will expire after tax year 2021 is over unless Congress acts to extend it.
- To quickly see if you might qualify, visit the Peoples Policy Project website.
- For more details, visit the IRS website.