The 2020 tax season has arrived, and this year there are many changes taking place that may impact your tax return. The IRS has long wanted to capture the income from the gig economy, and the new 1099-NEC attempts to do that.
Contrary to belief, just because you are paid in cash does not mean tax-free money. You are generally required to pay taxes on all income from all sources in the United States. When you are paid more than $600 for a service, the payor must submit a Form 1099. While in the past payments to nonemployees were generally recorded on a 1099-MISC, for 2020 the 1099-NEC was introduced. Generally, you must report payments to independent contractors on Form 1099-NEC in Box 1.
Before 2020, nonemployee compensation was reported in box 7 of Form 1099-MISC. The IRS filing deadline for the 1099-NEC was moved from March 1 to February 1, whether filed online or by paper. The federal stimulus payments—both of them—issued in 2020 assisted many households and stimulated the economy. However, they also created many tax questions. The most important thing to know is that the money is not taxable.
Federal law regarding unemployment payments did not change for 2020. While millions of Americans applied for and collected unemployment during the pandemic, it is uncertain if they all elected to withhold some of their benefits. If the benefits were not withheld during the year, there might be quite a surprise when tax payments come due. You should have received a Form 1099-G showing unemployment benefits paid. Even if you do not, however, you are still expected to report that income.
Remote work has become a big topic during the pandemic, and it too will affect the 2020 return season. If you are a full-time employee for a company—i.e., you receive a W-2 from your employer—expenses incurred while working from home are not tax-deductible. Additionally, if you worked remotely in a different state last year, your taxation at the state level could be different from previous years. Depending on the specifics, you may owe taxes in both the state where you worked remotely and the state where you were working before going remote.
These are a few of the new rules for 2020 that taxpayers should be aware of. To determine how these laws will affect your return, you should always consult with a tax professional. Everyone’s business and individual returns are unique, and there is no one-size-fits-all answer. Contact the attorneys at Flynn Giudici if you have any questions about your 2020 tax returns.