5 ways COVID-19 could affect your tax return
Amid the pandemic, everything looks different — even something as inevitable as tax season.
In fact, the pandemic may affect the way you pay your taxes this year. NBC News senior business correspondent Stephanie Ruhle answered some of the most common questions about what tax changes you might need to know about.
The IRS will start processing taxes on Friday, Feb. 12. This is later than in previous years, which Ruhle said means "more people will be filing their taxes in a shorter window." File as soon as you can to avoid delays.
If you're eager to get started, you can fill out your paperwork or submit your materials to your accountant ahead of time.
"You do not need to wait until Friday to get your materials together," Ruhle said.
Ruhle said that there are several benefits to filing early.
If you think you will owe money, filing early will give you more time to pull together funds for any payments you may need to make. Having that time to get money together can help you avoid paying interest or penalties on top of your taxes.
If you're owed money, the sooner you get the paperwork in, the sooner you'll get your refund, or any stimulus money that you may be owed! According to Ruhle, tax preparers say that filing online with direct deposit is the "most foolproof way" to get your refund on time.
Even if you usually file on paper, consider using digital options this year: Paper checks may be seriously delayed due to the pandemic.
Many people who abruptly started working from home quickly realized that they could do their jobs from anywhere. Whether that meant renting a house for a few months or moving to a new state permanently, it could affect the way you file your taxes.
"If you kept your job and moved to another state for a few months (or) maybe permanently, you could be on the hook to pay state taxes in more than one place," said Ruhle. "If you didn't pay any taxes (in your new state) since you moved, you might even have to pay interest and penalties."
If this is the situation you're in, Ruhle recommends consulting with a professional. Different states have different rules — for example, in New York and New Jersey, one state offers credit for taxes you pay in the other state if you live in one and work in the other.
Frank Duffy and his wife cashed in portions of their 401(k)s to keep financially afloat during the pandemic. He asked Stephanie on Twitter Now, he wants to know if there's any tax rules that will help out people who may be taxed for taking money out of retirement accounts early.
Ruhle said that the question comes down to whether or not you were "affected directly" by the coronavirus. Normally, if you take money out of your 401(k) or 403(b) account before the age of 60 59 and a half, you can face a 10% early withdrawal penalty, on top of any taxes you might owe. But due to the CARES Act passed earlier in the pandemic, people can withdraw up to $100,000 from those retirement accounts with no penalty and take up to three years to pay any associated taxes if the virus impacted you and your family. If you decide to repay the money you took out of the accounts and fully repay the amount within three years, you can get back the taxes you paid.
Situations that qualify would be if you, your spouse, or a dependent got sick, or if your family lost income due to the pandemic. Ruhle said that if you are planning to use this method, make sure you've double checked that you're eligible and following all the rules.
"Usually, it's not a good idea to take the money you saved for your retirement and use it today," she said. "But in the pandemic, if your rent is due or you need to get food on the table, it might be something you did, or are considering."