COVID-19 & Finance

[Music] covid19 has had a profound impact on many people's work and income but what about their taxes today i'm going to talk to you about several things you should be aware of to help not have a surprise when april 2021 taxes roll around the the cares act had several elements to it that might have tax impacts number one you might have received some direct relief twelve hundred dollars to a single person or twenty four hundred for married couples but that was limited by incomes but if you did receive that that's taxable income uh pandemic unemployment assistance was that extra six hundred dollars that you received if you were unemployed for a period of time and the state was giving unemployment assistance the states typically withhold 10 percent of your unemployment benefit for taxes but many people may especially if they were working earlier in the year may uh be in a higher tax bracket than 10 so if you are or maybe it's because your spouse is you need to be careful to have withheld enough money otherwise you'll owe it when tax time comes around a third element in the the cares act had to do with retirement accounts people were given early access to their 401k or iras up to a hundred thousand dollars without having to pay the 10 penalty even without that though taxes are due on that money because that was tax deferred so therefore you have to be careful that you've withheld enough if it's a 401k your 401k plan will likely have withheld 20 but if it's an ira they aren't required to do that so you should check and you may need to give put in a little extra money into withholding now another item that's a little different is the executive order that president trump signed in august 2020 that allowed employers to defer payroll tax charged on their employees if they earned less than four thousand dollars bi-weekly now payroll tax is 6.2 percent of your pay so that would be a nice little pay boost the little surprise though is that if your employer did that you would have extra withheld from your paycheck in the first quarter of 2021 to make up for that that payroll deferral now federal workers are all having this done they started september 1 but most private employers have chosen to opt out of the payroll deferral and i think for good reason because they knew that it would be difficult for their employees when they hit the time where they had to pay the double uh 6.2 percent now last thing to talk about with respect to taxes is the issues related to working from home and there's two things here one is if you are working from home in a state other than where you used to work it's possible you may have to file and potentially owe taxes in a different state so you need to look at that and find out what the rules are within your state only 16 states have reciprocity agreements that say that if you're paying tax in one place you'd want to pay tax in that other state second is the home office deduction i know a lot of people were thinking oh gosh i'm working from home now i should be able to deduct some of the expenses the reality is that probably not the tax cuts and jobs act significantly reduce the ability to take a home office deduction in order to do so you have to have self-employment or independent contractor income not just w-2 income so that means you file a schedule c business expense or you have an llc or something if you do have that then you have to be careful that your home office is truly separate from the rest of your home so you have to use a portion of your home regularly and exclusively for your business and so if you're just doing your work in your spare bedroom but that bedroom also sometimes used as a bedroom you don't qualify so i hope this has been helpful to help you avoid the income tax surprise that might happen in april 2021