W-4 form and a pen. Tax season.

What you need to know this tax season


The U.S. Treasury Department and Internal Revenue Service (IRS) announced that the deadline for filing federal income taxes will automatically extend to May 17, 2021

This additional time reflects the later-than-usual start to this year’s official filing season. But it also intends to make it easier for taxpayers to navigate new and modified filing considerations tied to the year’s coronavirus pandemic relief policies. 

Understanding how recent updates to tax laws and regulations impact your return ensures a smoother filing process — saving you time, headaches, and the risk of surprise penalties. 

Filing taxes 2021: What you need to know‌

The percentage of your income that you owe in taxes — or your tax rate — is based on which income bracket you fall into. In 2021, the income limits for each bracket increased slightly to account for inflation. For those claiming a standard tax deduction in 2020 rather than itemizing individual deductions, this amount also rose. 

Tax deductions are the expenses subtracted from your total income, reducing the total that’s subject to tax. In addition to common deductions like small business or self-employment expenses you may qualify for, legislation has expanded:

There are also tax credits available to eligible individuals that can reduce your total tax bill or generate a refund. You may be able to claim credits like the:

If you have outstanding stimulus payments due

Since the Coronavirus Aid, Relief, and Economic Security (CARES) Act was first signed into law in March 2020, Congress has issued three rounds of economic impact payments — or stimulus checks — to eligible taxpayers. 

Stimulus payments will not count toward your taxable income but you may also qualify for a Recovery Rebate Credit on your tax return if:

  • The AGI on your 2020 return is smaller than the one used to calculate your stimulus payment‌
  • You are claiming more dependents on your 2020 return
  • You didn’t receive all stimulus funds you were eligible for
  • You were listed as a dependent on someone else’s tax return in 2019, but not in 2020

To claim this credit, list the difference between what you are owed and what you’ve received from the IRS on line 30 of your 2020 Form 1040 or 1040-SR

If you received unemployment benefits

Until recently, all unemployment benefits were considered taxable income. March 2021’s American Rescue Plan (ARP) introduced some changes to this standard, offering some relief to Americans whose jobs were affected by COVID-19.

Under this new legislation, households with an annual income less than $150,000 do not have to pay any tax on their first $10,200 of unemployment assistance. You should receive a 1099-G that shows the total amount of benefits you received in 2020. 

If you got a Paycheck Protection Program (PPP) loan‌

The CARES Act also introduced its Paycheck Protection Program (PPP) loans to help small businesses manage operational expenses like payroll, rent or mortgage, and utilities. 

If you received a PPP loan and used the funds toward qualified expenses, you can apply for loan forgiveness with the Small Business Administration (SBA). In late 2020, the IRS also announced that you can deduct eligible PPP-funded expenses from your taxable income.  

If you got a second — or third — job‌

If you took on extra work to offset lost income during 2020 — including freelancing or gig-style jobs — you’ll owe regular income taxes on any earnings at your normal tax rate. If this side-hustle income exceeds $400, you will also be subject to a 15.3% self-employment tax. However, you can generally reduce this tax by about half through deduction claims.   

But keep in mind that if your income was affected due to unemployment or reduced hours during the pandemic, you may also be eligible for an Earned Income Tax Credit (EITC) or Child and Dependent Credit. 

If you made a retirement withdrawal

Millions of Americans tapped into their retirement funds in 2020. The CARES Act allowed individuals under age 59.5 to access up to $100,000 from IRA or 401(k) accounts without facing early withdrawal penalties. 

While this income is considered taxable, new regulations offer taxpayers three years to replace withdrawn funds — and then receive a refund for taxes paid on that money in the interim. Changes to IRA plans introduced by the CARES and SECURE Acts also stand to save retirees on their 2021 taxes. This includes legislation that:

Enables owners of traditional IRAs over age 70.5 to continue adding tax-deductible funds