FML partner Angel Li was a guest on WNPR’s All Things Considered just ahead of the May 17 extended tax filing deadline. Angel spoke with host John Henry Smith about the economic stimulus payments, unemployment income and the child tax credit. Listen to the full audio or read the transcript below. (And for additional 2020 and 2021 tax tips from Angel, check out her recent post.)
WNPR: For the second straight year, taxpayers have gotten extra time to pay their taxes. This year’s deadline is May 17. For those of you procrastinators out there who need some last-minute advice, I’ve invited Angel Li of accounting firm Fiondella, Milone & LaSaracina to the program, and henceforth that will be known as FML. Angel, what’s so different about filing this year that our listeners should take note of?
FML: So the first thing, the economic impact payments, hot topic this year. There’s a first payment, second payment, third payment. My clients are asking me left and right, what do I do if I get it? What do I do if I didn’t get one? Here is what I have been telling my clients. If you did not get these payments, because you just didn’t get them or your 2019 return income was too high, but you actually qualify, you need to tell your tax advisor and say, “Look, I didn’t get these payments, my ’19 income was too high. Please make sure that this is included as the recovery rebate credit.”
WNPR: Recovery rebate credit, you will get that if you didn’t get a stimmy payment?
FML: Correct. This is on page two of your individual income tax return. Another one is the third economic payment of $1,400 per person, and per dependent. This one, don’t get nervous. If you didn’t get one yet and you don’t qualify — because your ’19 income doesn’t qualify — when you file your 2021 return you will get it. It will be the same thing where there’ll be a separate line item where you could claim that you didn’t receive the $1,400 per person and dependent. And you could complete it there with your 2021 return. Then you’ll get it with your 2021 return as a refund or a credit.
WNPR: If you got unemployment checks this year did I hear that you could avoid getting taxed on like, say, the first $10,000 or so of unemployment compensation?
FML: That is correct. The American Rescue Plan made the first $10,200 unemployment income to be tax free. If your household income is less than $150,000. As many of you out there might have already filed your return prior to when this was signed, you don’t have to amend your return. You do not need to do anything. The IRS will adjust correctly on their end and refund you any money that you have paid on that income.
WNPR: I understand the Biden administration has announced plans to send families a child tax credit starting in July. It starts in July if you want six months of payments, or it starts next April if you want a lump sum, I understand. Is there anything taxpayers with kids under the age of 17 need to do now to apply or prepare for this?
FML: No, you don’t. So, what I have been telling my clients is, if you think your 2020 income will qualify you for this advancement of child tax credit, then file your 2020 return as soon as possible. For example, your 2019 income might not qualify, but you haven’t filed your 2020 return and you’re thinking of filing the 2020 return in October. Well, file your 2020 return now, get it into the IRS system, then the IRS would know that you actually qualify and they will start cutting you that check starting in June. Keep in mind, if you have a qualifying child that is six years and younger, the credit is $3,600. If you have a child that is six years and older, the credit is actually $3,000. So it’s very important that you get your 2020 return in to get the age, or if you have a newborn at home in 2020, if you get the 2020 return in, you will get more accurate information to the IRS for them to do the right thing.
WNPR: And what’s the income threshold?
FML: It’s $150,000. There are some other limitations. You should definitely talk to your tax advisers on that, but in general it’s $150,000.
WNPR: All great advice. Angel Li, CPA and partner at Connecticut accounting FML, thank you so much for your time.
FML: Thank you. Happy to be able to.