With all the chaos of 2020, we have almost forgot that tax season has here! This year, there are some COVID-19 related changes that we wanted to highlight.
Tax Filing Deadline: July 15th
Due to COVID-19, the federal tax filing is now delayed to July 15, 2020. This gives us more time to get our finances in order and also gives us more time to contribute to Roth or Traditional IRAs, since those deadlines have been extended as well.
State Tax Filing Deadlines for 2020
Most states have extended deadlines too, but you should check with your state (updated as of June 3, 2020 so confirm in your state)
COVID-19 Stimulus (CARES Act)
The CARES Act is a piece of legislation that Congress has enacted to react to COVID-19 and includes a few urgent health changes, but also some longer term financial perks that may apply to you. We list the changes below.
- COVID Testing: While testing is entirely free, please note that treatment will still need to be covered by health insurance or paid out of pocket. As always, we note that some health insurance bills are negotiable and it never hurts to ask for large or unexpected charges.
- Telehealth: HSAs and high-deductible plans (HDHPs) now cover telehealth free of cost sharing through Dec 31, 2021. This means that you can set up a virtual doctor’s appointment and it will be entirely covered by insurance or HSA through 2021. If you are on one of these plans, keep a lookout in your company or personal email for additional information, as most health plans will inform or have updated info on their website / through customer service.
- Student Loans: While federal student loan payments and interest are automatically on pause through September 30th, other loan policies will vary and are likely addressed on an individual basis. Per the CARES Act, employers can directly make student loan payments (up to $5,250 per year) tax-free through Jan 2021. Check with your employer to see if this applies to you as only some employers offer this program.
- Early Retirement Penalty Waived: If you’re in immediate need of money and quality under COVID-impacted conditions such as financial consequences or diagnosis of COVID, you can take up to $100k out of your retirement funds without the 10% withdrawal penalty. While we understand emergencies happen, we encourage readers to avoid depleting retirement accounts except as a last resort.
- New HSA, FSA and HRA Coverage: Please also note that HSA, FSA and HRA plans now cover non-prescription over-the-counter medicine and menstrual products! Since these products apply to many readers, I’d highly recommend sharing that info with your family and friends.
Hopefully many of you have already received stimulus checks earlier this year ($1,200 for individuals, $2,400 joint and $500 per child). These checks are not taxed, since they are structured as an advance refundable tax credit.
Regular Annual Tax Changes
- Standard deduction has increased to $12,200 for single filers and $24,400 for married couples.
- Income tax brackets increase every year and increased this year to adjust for inflation. If you want to know roughly your incremental tax rate, check out the brackets below:
How do marginal tax brackets work?
Tax brackets for each income level apply to your marginal income. That means that you max out each tax bracket on your way up!
Notes that state and city taxes are added on top of your federal taxes, which is why income taxes are much higher in more job opportunity cities like New York and San Francisco.