Overseas Tax Services

US Income Tax Preparation for Americans Living Abroad

COVID-19 Tax Changes

Last updated March 18, 2021. (Updates in blue.)

There has been a variety of congressional and IRS of responses to the COVID-19 pandemic, with the most recent being the passage of the American Rescue Plan Act of 2021 and the announcement this month of a filing deadline postponement. We will attempt to keep this page updated with the key tax-related changes that affect most of our clients. This page is not comprehensive and is certainly not final authority on anything. It may also get out of date as we try to keep up with processing tax returns while the rules keep changing around us. But it may answer some of your big-picture questions about where things stand as of the date listed above. In addition, the IRS posts Coronavirus-related updates here.

Deadlines

  • Individual tax returns and tax payments for tax year 2020 (filing season 2021) are due May 17, 2021, with an automatic extension to June 15 if you are currently overseas. (The IRS announced this postponement on March 17.)
  • Individual tax returns and tax payments for 2019 that would normally have been due April 15, 2020 were due July 15, 2020. No interest or penalty will be charged as long as returns were filed and tax was paid by that date.
  • First and second quarter estimated taxes for tax year 2020 were also due July 15, 2020. As of the March 17 IRS announcement, Q1 payments for 2021 are still due April 15, 2021.
  • Every state makes its own decision about deadlines. We will need to monitor how they each handle the federal postponement to May.

Economic Impact Payments

(AKA Stimulus Payments, Recovery Rebates, etc.)

There have now been three rounds of payments. The first was sent in the spring and summer of 2020. The second was sent between December 29, 2020 and January 15, 2021. The third started going out in mid-March, 2021. These payments are not taxable, but do need to be reconciled on your tax return to determine if you are eligible for any additional amounts.

First-Round Payment

  • Technically, the payment is a credit based on your 2020 income. In most cases, it was issued in spring/summer 2020, based on your 2018 or 2019 income, but will be reconciled on your 2020 tax return. i.e. If you didn’t receive it in 2020, or didn’t receive as much as you’re entitled to, you’ll receive it (or the difference) when you file your 2020 tax return. However, if you receive more than you’re entitled to, you will not have to pay back the difference.
  • Maximum payment is $1,200 for singles, $2,400 for Married Filing Joint, plus $500 for each child under age 17. Dependents age 17 and older (e.g. dependent college students) are not eligible for a payment on their own nor on their parents’ return.
  • If your adjusted gross income (AGI) is under $75,000 (Single), $112,500 (Head of Household), or $150,000 (Married Filing Joint) you are entitled to the full payment.
  • Above those limits, the payment phases out for incomes up to $99,000/$136,500/$198,000 respectively. Above these higher levels, you are not entitled to a first-round payment, except that the phase-out levels increase for each qualifying child.
  • AGI for payments made in 2020 was determined directly from your tax return (2018 Form 1040 line 7 or 2019 Form 1040 line 8b) without adding back the Foreign Earned Income Exclusion or other adjustments. Reconciliation will be calculated based on your 2020 AGI (2020 Form 1040 line 11).
  • If you had already filed a 2019 return when they issued your payment, the calculation was based on your 2019 Adjusted Gross Income. If you had not yet filed a 2019 return, it was based on your 2018 AGI. If you hadn’t filed either year, it was based on your 2019 Social Security benefits, if you received any. Payments began going out by direct deposit on April 10. Checks started being mailed around April 20 and continued throughout the spring and summer.
  • The IRS was authorized to issue payments electronically to any bank account that you used to receive direct deposit of a tax refund since Jan. 1, 2018. Alternatively, the IRS mailed a check or prepaid debit card to the last address they had on file. Within 15 days of making a payment, the IRS sent a letter to your last known address indicating the amount of the payment and how the payment was made.
  • Taxpayers with ITINs rather than SSNs were not eligible for the payment. For the first-round payments, even if only one spouse or child has an ITIN, no one on that tax return was eligible for a payment. However, due to changes made in December 2020, such taxpayers can claim a credit on their 2020 tax return for the taxpayer who has an SSN.
  • Please keep a record of the amount of payment you received as this will need to be reconciled on your 2020 tax return. Again, you won’t need to pay back any excess, but you could be eligible for an additional payment depending on your income, dependency status, etc.

Second-Round Payment

  • The second round of payments were for a maximum of $600 for singles, $1,200 for Married Filing Joint, plus $600 for each child under age 17. Dependents age 17 and older (e.g. dependent college students) were not eligible for a payment on their own nor on their parents’ return.
  • If your adjusted gross income (AGI) is under $75,000 (Single), $112,500 (Head of Household), or $150,000 (Married Filing Joint) you are entitled to the full payment.
  • Above those limits, the payment phases out for incomes up to $87,000/$124,500/$174,000 respectively. Above these higher levels, you are not entitled to a second-round payment, except that the phase-out levels increase by $12,000 for each qualifying child.
  • AGI was determined directly from your tax return (2019 Form 1040 line 8b) without adding back the Foreign Earned Income Exclusion or other adjustments. Reconciliation will be calculated based on your 2020 AGI (2020 Form 1040 line 11).
  • Taxpayers with ITINs rather than SSNs are not eligible for the payment. However, for the second-round payments, taxpayers with SSNs are eligible even if their spouse is not.
  • Again, keep a record of the amount of payment you received as it will need to be reconciled on your 2020 tax return.

Third-Round Payment

  • The third round of payments is for a maximum of $1,400 for singles, $2,800 for Married Filing Joint, plus $1,400 for each dependent, regardless of age.
  • If your adjusted gross income (AGI) is under $75,000 (Single), $112,500 (Head of Household), or $150,000 (Married Filing Joint) you are entitled to the full payment.
  • Above those limits, the payment phases out for incomes up to $80,000/$120,000/$160,000 respectively. Above these higher limits, you are not entitled to a third-round payment.
  • AGI is determined directly from your 2020 tax return if it has been processed, and otherwise from your 2019 tax return. If your 2020 return is processed after the payments are sent and entitles you to a larger amount, top-up payments will be sent later in the year.
  • Reconciliation will be calculated based on your 2021 AGI, but you will not have to pay back any excess you might have received. Keep a record of the amount of each payment you received.

Tax-Free Unemployment Benefits

  • For those with AGI under $150,000 (regardless of filing status), the first $10,200 of unemployment income is federally tax-free for 2020.
  • States have their own rules on taxing unemployment income. We will need to monitor which states decide to conform to the federal change.

Advance Premium Tax Credit

  • For tax year 2020, if you received a subsidy on Marketplace health insurance and received too much advance payment, you do not need to pay it back.

Child Tax Credit

  • For tax year 2021 only, the Child Tax Credit is fully refundable for taxpayers living in the US, and increased to $3,600 per child age 0 to 5 and $3,000 per child age 6-17.
  • The amount over $2,000 phases out at $75K single/$150K joint AGI, and the $2,000 phases out at $200K single/$400K joint AGI
  • Generally, 50% of the credit will be advanced via monthly payments from July-December 2021.
  • Any child tax credit amounts you receive through the advance payment process will need to be reconciled on your 2021 tax return and any excess will have to be repaid.
  • The IRS is tasked with creating a portal before July where you should be able to update your information and/or opt out of the monthly payments.

Child and Dependent Care Credit

  • For tax year 2021 only, this credit is fully refundable and available for qualifying expenses up to $8,000 for one child and $16,000 for two or more children.

COBRA Subsidy

  • If you become eligible for COBRA health coverage between April 1 and September 30, 2021 due to a reduction in hours or involuntary termination, your employer may be required to cover 100% of the cost. You are not eligible for this benefit if you leave your job voluntarily.

IRA changes

  • A “coronavirus-related” distribution was a withdrawal made during 2020 by someone who was diagnosed with COVID-19, someone whose spouse or dependent was diagnosed, or someone who had adverse financial consequences due to COVID-19.
  • You were permitted to take a coronavirus-related distribution from your IRA of up to $100,000 without incurring a 10% early-withdrawal penalty.
  • The taxable income from coronavirus-related distributions will be spread over three years (2020-2022) unless you elect to include it all in your 2020 income.
  • If you took a coronavirus-related distribution, you may pay it back within 3 years of the date of the distribution. This effectively let you give yourself a loan from your IRA.
  • Required Minimum Distributions (RMD’s) were suspended for 2020. i.e. For those age 70 1/2 or older in 2019, you were not required to take your RMD in 2020. (A previous law change announced that if you reached age 70 1/2 in 2020 or later, you must take your first RMD by April 1 of the year after you reach age 72.)

Miscellaneous other changes

  • The IRS paid interest on 2019 tax refunds for returns filed by July 15, 2020 if the refund was issued after April 15, 2020. If the interest was at least $10, you will receive a 1099-INT from the IRS reporting that income.
  • For tax year 2020, taxpayers using the Standard Deduction may take a deduction of up to $300 for cash charitable contributions. (Usual documentation rules apply.) For tax year 2021, this increases to $600 for Married Filing Joint returns.
  • A portion of 2020 Self-Employment tax, if not yet paid when you file your tax return, can be deferred over three years.
  • Net Operating Losses (NOLs) from 2018, 2019, and 2020 can be carried back five years.
  • There are lots of changes affecting paid sick leave and family and medical leave, as well as help for business owners, including the self-employed. I’m not going to try to cover those here, but the Department of Labor has a Q&A page here. The Small Business Administration is the other place to look for information on loans and grants, as well as your local bank.