Shutterstock
To be frank, 2020 was a weird year. Doing your taxes is normally a stressful and arcane process, but this year it will be even more outlandish than usual. There is a lot to consider.
Maybe you hired childcare services, like a nanny? You’ll need to pay nanny taxes. Maybe you’ve received stimulus money from the IRS and you’re wondering what that will do to your taxes.
Here’s what you need to know about the 2020 tax returns.
In March, Americans received up to $1,200 as a stimulus to help with the impact of the novel coronavirus pandemic. Then, in January, another stimulus check, this time for $600, was distributed to many Americans.
These amounts were variable based on your previous years’ tax returns. The first check was based on either your 2018 or 2019 taxes, while the second check was based on your 2019 taxes.
Thankfully, the stimulus checks aren’t counted as income by the IRS. If your check bumped you to a higher tax bracket, don’t sweat it. You don’t need to claim the money from the checks as income and it won’t affect your tax return this year.
If you feel as though you received the wrong amount of money in your stimulus checks, however, now is the time to note that. With your 2020 tax return, claim a Recovery Rebate Credit, which will allow you to collect the additional stimulus money you missed as part of your tax return.
Notably, college students and dependents over 17 weren’t eligible for the $600 stimulus check.
If you fall into one of those excluded groups, do not claim a Recovery Rebate Credit, as you were not eligible for the money. Some high earners also were ineligible for one or both of the checks.
A lot more people hired childcare providers in 2020 than in a usual year. Remember, you have to pay nanny taxes for any household employees, even if you paid them in cash.
Both employers and employees need to pay 7.65% of the employee’s wages to the federal government to cover programs like Social Security, Medicare, and unemployment benefits.
Don’t laugh this off and refuse to pay these taxes. Failure to pay taxes could result in criminal charges, fines, and even jail time. Likewise, misclassifying a household employee as an independent contractor could result in the IRS deeming your actions as tax evasion.
