JERSEY CITY, N.J., January 12, 2021 – The 2020 tax year was unparalleled in many ways, which will likely surprise taxpayers who don’t plan ahead, according to tax experts at Jackson Hewitt Tax Service®. Many taxpayers have come to expect a consistent tax refund amount each year, but there are many reasons why tax refunds could be less, or leave taxpayers owing tax come April 15, 2021.
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For many Americans, filing their tax return is the biggest single financial transaction of the year, and not getting a tax refund can cause concern because many taxpayers count on that tax refund each year,” said Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “If a taxpayer collected unemployment benefits, became self-employed, or had any kind of job change during 2020, they could be receiving a smaller tax refund or no refund at all this tax year.”
According to a recent Jackson Hewitt survey, only 20% of taxpayers know how their tax refund will be impacted due to employment changes in 2020. To help manage refund expectations, Jackson Hewitt advises taxpayers to prepare and file early to understand their tax situation. Taxes owed aren’t due until the tax deadline of April 15, so preparing and filing early allows taxpayers time to prepare their finances.
Jackson Hewitt shares the top three reasons a tax refund may be lower than expected this year.
- Unemployment Benefits. Unemployment benefits are subject to federal and state taxes like any other source of income. State unemployment benefits, as well as the additional $600 a week coronavirus relief, are considered taxable income. However, income tax is not automatically withheld from this income, meaning taxpayers must have opted-in or elected to have taxes withheld from their unemployment benefits. Since most taxpayers who are unemployed don’t elect to have taxes withheld from their benefit payments, they can expect to owe tax on this income.
- Self-Employed. Many people became self-employed in 2020 to make ends meet, and there are tax implications on this income. No matter what the side job, income earned must be reported on a tax return. While there are significant tax deductions and tax benefits available to the self-employed, taxpayers need to make quarterly estimated payments on that income if they earned at least $400. Failure to pay taxes correctly could risk penalties and interest charges come tax time.
- Working from Home. Many taxpayers who worked from home in 2020 may think they can claim their home office as a deduction on their 2020 tax return, but due to changes in the tax code in 2018, working from home as an employee does not qualify for a home office deduction. However, self-employed taxpayers, whether full-time or part-time, may qualify for a home office deduction.
Jackson Hewitt is also encouraging taxpayers to pay attention to tax law changes and benefits on an ongoing basis. This year many taxpayers may have received a stimulus check, or Economic Impact Payment, which were based on 2019 tax returns. Recent tax legislation just passed in December, which included stimulus payments for select taxpayers and some other safe harbor provisions for Earned Income Tax Credit taxpayers providing options and help, is one reason taxpayers should keep up-to-date with tax law changes.
For taxpayers who haven’t received their second stimulus payment due to an IRS error: they can expect to receive their payments in early February. The IRS has confirmed that once their systems are back online, impacted taxpayers will have their payments processed by February 1. Taxpayers who did not receive the full amount of either stimulus payment that they were eligible for can claim the Recovery Rebate Credit when they file their 2020 tax return.
During the 2020-2021 tax season, Jackson Hewitt's offices are committed to keeping their clients, staff, and communities safe with safety protocols designed to meet local, state, and federal guidelines. Jackson Hewitt offers many ways to file. Choose to make an appointment at your nearest location to file in an office or drop off your documents, or file from the comfort of your home with Jackson Hewitt Online or Tax Pro From Home.
Visit jacksonhewitt.com to learn more about how to file with Jackson Hewitt.
About Jackson Hewitt Tax Service Inc.
Jackson Hewitt Tax Service Inc. is an innovator in the tax industry, with a mission to provide its hard-working clients access to simple, low-cost solutions to manage their taxes and tax refunds. Jackson Hewitt is devoted to helping clients get ahead and stands behind its work with its Maximum Refund Guarantee and Lifetime Accuracy Guarantee® (restrictions apply, see Jackson Hewitt’s website for more details). Clients can choose to file at one of Jackson Hewitt's nearly 6,000 franchised and company-owned locations, including 3,000 in Walmart stores and online, making it easy and convenient for clients to file their taxes. For more information about products, services, and offers, or to locate a Jackson Hewitt office, visit www.jacksonhewitt.com or call 1 (800) 234-1040.
The Jackson Hewitt survey was conducted online by Dynata on November 30, 2020, among 1,000 American adults aged 18 and older. Respondents to the survey were selected from those who volunteered to participate in online surveys. One thousand complete surveys were collected using the sample framework based on U.S. Census data for age, ethnicity, gender, region, and income.
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