Dave discovers three instances of ‘free money’ while preparing 2020 taxes

Just in time for tax season, tax expert Don DeSantis at CliftonLarsonAllen joined Dave Ross on Seattle’s Morning News to share insights into a few of the filing changes this year from the IRS.

To start, what kind of taxes will people have to pay on some of the coronavirus relief money they may have received, such as the lump sum payment, the checks? How does the IRS treat those?

“Well, technically, Dave, those checks are a credit on your 2020 tax return, and the actual payments that they issued were an advanced payment of the credit,” DeSantis explained. “So let’s say you didn’t get a check or you got a check for the wrong amount of money, you can fix that when you file your 2020 tax return. So you can either get the money when you file your return, or if they didn’t give you enough because you have another kid that they weren’t aware of, you can make that up and get the money when you file your return.”

“On the other hand, if they gave you too much money that you weren’t entitled to, Congress said keep the money,” he added.

That’s, Dave pointed out, the first instance (of what will be three instances) of “free money.”

What about some of the business loans that were intended to keep businesses afloat?

“There’s good news on that front because the law, when it was first enacted back in March of 2020, said that the government would make these loans available, and what you had to show is … that you used the money for appropriate purposes,” DeSantis said. “In other words, business purposes versus personal purposes.”

If you did that, then you did not have to pay the loan back. As he explains, the loan became like a grant.

“The problem is that the IRS, during the summer, came along and issued an interpretation that said, ‘Well, that’s fine and great. You don’t have to pay the loan back. We’re not gonna let you deduct any of those expenses you used the loan for,’ like payroll, or rent, or whatever,” DeSantis said. “The bill that was signed right at the end of December, Congress fixed that and they said, ‘you know what, if the loan is forgiven? Great. And by the way, you could still deduct those expenses.'”

For those keeping track, that’s free money instance number two.

In terms of tax deductions, there were some changes to the child tax credit?

“The child tax credit is going to be $2,000 per child,” DeSantis replied. “… Biden’s plan proposes to increase that, but of course, that doesn’t affect 2020. That’s a future issue.”

“Oh, by the way, Congress also said that if your employer helped you pay your student loan, that’s going to be excluded. In the past, employers could pay for education expenses up to a certain amount, and you wouldn’t have to report that as income,” DeSantis said. “Congress has said, ‘Well, you know, maybe they didn’t send you to a training course last year, but they helped pay your student loan,’ that’s going to fall within this education exclusion.”

Which means you don’t have to pay taxes on that, and that’s the third instance of free money brought up in this interview, Dave said.

“Well, it’s a stimulus, Dave,” DeSantis replied.

For the standard unemployment payments from the state — not the federal bonus — how is that treated for tax purposes?

“Unemployment benefits have always been considered taxable income,” DeSantis explained. “Because if you step back and think for a moment, what is an unemployment payment? Well, it’s just a replacement for your salary. If you had a job, you know, you’d get income, you’d pay taxes on it. Well, you lost your job for some reason, and you’re getting these unemployment benefits. And so the law says those are subject to tax.”

“There’s been no change that I’m aware of in that regard. So this would be something of interest for somebody who lost their job in 2020 and received a lot of unemployment benefits. [They] may find they get to the end of the year, and suddenly they’ve got more taxable income than they thought,” he added.

Head of WA unemployment office leaving to join Biden administration

Early birds who wanted to file taxes now will have to wait. The IRS usually announces it’ll start accepting individual returns in late January, but this year it won’t take anything before Feb. 12.

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