United States Tax Change Highlights for 2020
EIP payments not taxable, Recovery Rebate Credit and other taxpayer relief, and a new charitable donations deduction on Form 1040.
Taxation of Economic Impact Payments
Any Economic Impact Payments (EIP 1 and EIP 2) you received are not taxable for federal income tax purposes.
Recovery Rebate Credit
If you didn't receive the full amount of Economic Impact Payments, you may be able to claim the Recovery Rebate Credit on Line 30 of your 2020 tax return for the difference. The refundable amount is based on 2020 income and information, and is calculated using the Recovery Rebate Credit Worksheet in the Form 1040 instructions.
You received the full amounts of Economic Impact Payments if:
- your first Economic Impact Payment was $1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying child you had in 2020; and
- your second Economic Impact Payment was $600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying child you had in 2020.
You will need to know the amounts of Economic Impact Payments received to complete your 2020 return. This information can be obtained online if you have an account at www.irs.gov, or by referring to the IRS letters you received with your payments.
Other Taxpayer Relief
Recent legislation provided certain tax-related benefits, including the following:
- Election to use your 2019 earned income to figure your 2020 earned income credit. See the 1040 instructions for Line 27 for more information.
- Election to use your 2019 earned income to figure your 2020 additional child tax credit. See the 1040 instructions for Line 28 and the instructions for Schedule 8812 for more information.
- Educator expenses include amounts paid or incurred after March 12, 2020 for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus. See the 1040 instructions for Schedule 1, Line 10.
- If you were impacted by certain federally declared disasters, special rules may apply to distributions from your IRA, profit-sharing plan, or retirement plan. See Publications 590-B and 575 for details.
Form 1040-NR Revision
Form 1040-NR has been revised to more closely follow the format of Forms 1040 and 1040-SR. Beginning in 2020, Form 1040-NR will use Schedules 1, 2, and 3.
Estimated Tax Payments now Reported on Line 26
In 2019, estimated tax payments and any amount applied from your previous year's return were reported on Schedule 3, Line 8. In 2020, these payments will be reported on Form 1040 or 1040-SR, Line 26.
New Charitable Contributions Deduction for Non-itemizing Taxpayers
If you don't itemize deductions on Schedule A (perhaps because your Standard Deduction is larger), you may qualify to take a deduction for charitable contributions on Line 10b. See the 1040 instructions for Line 10b to find out how much you can deduct.
Standard Deduction Amount Increased
The 2020 Standard Deduction has increased for all filers. The new amounts are:
- Single or Married filing separately: $12,400
- Married filing jointly or Qualifying widow(er): $24,800
- Head of household: $18,650
Virtual Currency
If you engaged in a transaction involving virtual currency in 2020, you will need to answer the question on Page 1 of Form 1040 or 1040-SR. In 2019, this question was on Schedule 1.
Deductible IRA Contributions
You no longer need to be younger than age 70½ to take a deduction for your contributions to an IRA. See the 1040 instructions for Schedule 1, Line 19.
Coronavirus Tax Relief for Certain Individuals
The Coronavirus Aid, Relief, and Economic Security (CARES) Act permits certain individuals who file Schedule SE or Schedule H to defer the payment of 50% of the social security tax imposed for the period beginning on March 27, 2020, and ending December 31, 2020. For more information, see the instructions for Schedule SE or Schedule H. For information on reporting the deferral, see the 1040 instructions for Schedule 3, Line 12e.
Credits for Sick and Family Leave for Certain Self-Employed Individuals
The Families First Coronavirus Relief Act (FFCRA) helps self-employed individuals affected by coronavirus by providing paid sick leave and paid family leave credits equivalent to those that employers are required to provide their employees for qualified sick leave wages and qualified family leave wages paid during the period beginning April 1, 2020, and ending December 31, 2020. For more information, see the instructions for Form 7202 and 1040 instructions for Schedule 3, Line 12b.
Form 1040-X, Amended U.S. Individual Income Tax Return
The IRS has started to accept electronically filed Forms 1040-X. Currently, only tax year 2019 Forms 1040 and 1040-SR can be amended electronically. Additional improvements are planned for the future. You can still file a paper Form 1040-X and should follow the instructions for preparing and submitting the paper form.
Schedule LEP (Form 1040), Request for Change in Language Preference
Schedule LEP is a new form that allows taxpayers to state a preference to receive written communications from the IRS in a language other than English. For more information, including what languages are available and how to file, see Schedule LEP.
Schedule D Tax Worksheet
If you are filing Form 4952 and you have an amount on Line 4e or 4g, you must use the Schedule D Tax Worksheet in the Instructions for Schedule D to figure your tax, even if you don't need to file Schedule D. See the 1040 instructions for Line 16 and the instructions for Schedule D.