Tax Tips for 2020 and 2021

By Mitchell J. Smilowitz, CPA

The Federal government continually updates the tax laws. In 2020, Congress created and expanded tax benefits for individuals in order to blunt the economic impact of the pandemic.

This article explores some of the tax strategies that you are most likely to use in 2020 and 2021. While this article is not the last word on tax benefits for which you might qualify, these tax provisions are a good place to start your tax planning.

We divide this article into three sections.

  • Tax policies directly related to the pandemic.
  • Tax strategies for everyone – whether you itemize or not.
  • Tax strategies for those who itemize.

Tax Policies Directly Related to the Pandemic

  • Unemployment Benefits. Federal unemployment benefits are taxable while economic stimulus payments (those $1,200 and $600 Economic Impact Payments most of us received) are not. States vary on the taxability of unemployment benefits. An enhanced unemployment benefit at the federal level ($600 in pandemic unemployment) was added to every weekly state unemployment benefit in 2020. Check with your tax advisor about what you may owe in taxes on any unemployment benefits you received in 2020 or receive in 2021.
  • Required Minimum Distributions. RMDs were waived for 2020, but those age 72 and above will need to take an RMD in 2021. If you continue to work within the Conservative Movement, however, you may not need to take an RMD from your JRB account.
  • Withdrawals from your Retirement Plan for Pandemic Purposes. If you took a coronavirus-related distribution from your retirement account, you have through 2022 to repay it. You will owe taxes on any funds you do not repay. Talk to your tax preparer about the best strategy for paying these taxes.
  • Recovery Rebate Credit. Individuals who were eligible for an Economic Impact Payment but did not receive one, or were eligible for a larger payment than they received, will be able to claim a Recovery Rebate Credit when they file their 2020 taxes.

Tax Strategies for Everyone – Whether or Not You Itemize

  • Increase Your Contribution to Your Retirement Plan. Retirement savings remain the #1 tax reduction strategy for JRB plan participants. Not only do you reduce your taxable income by the amount you contribute (up to federal maximums), your savings grow tax free in the plan; taxes are only paid when you withdraw the money in retirement, when you will likely be in a lower tax bracket.
  • Earned Income Tax Credit. The EITC refundable tax credit is designed to support low- and some middle-income families. The EITC reduces the amount of tax owed on a dollar-for-dollar basis and may result in a refund if the amount of the credit is greater than the amount of tax owed. To apply for the EITC in 2020, you can use your 2019 or 2020 income – whichever generates the bigger credit.
  • Child Care Tax Credit. The Child Care Tax Credit is a non-refundable tax credit available to taxpayers who pay out-of-pocket expenses for child care. You are allowed to claim between 20% and 35% of total child care and dependent care expenses based on your income. In 2020, you can use your 2019 or 2020 income – whichever generates the larger credit.
  • Charitable Deduction for Non-Itemizers. Taxpayers who don’t itemize can still take an above-the-line deduction for charitable contributions up to $300 in 2020. Starting in 2021, a couple filing jointly can deduct $300 per spouse or $600 total.

Tax Strategies for Those Who Itemize

  • Educator expenses for Personal Protective Equipment. Educators can use the $250 educator expense deduction for personal protection equipment and other COVID-related expenses retroactive to March 12, 2020.
  • Private Mortgage Insurance Deduction. Lenders generally require private mortgage insurance (PMI) when borrowers make down payments less than 20% of the purchase price. Eliminated in 2017, this deduction was reinstated in 2019. Taxpayers can take the deduction retroactively for the 2018 and 2019 tax years by filing amended returns.

2020 was an active year for tax policy. Congress aggressively used the tax code to mitigate the economic impacts of COVID-19. These actions changed the existing tax laws and expanded tax opportunities for most taxpayers. To determine whether the tax provisions described above apply to you, speak with your tax preparer.


February 2021