To Her Credit offers targeted advice about personal finance based on unique challenges faced by women. It is authored by women with different financial backgrounds, dedicated to encouraging empowerment through financial literacy.
Nearly 2 million women in the U.S. will be filing taxes a bit differently this year. Why? That’s how many women left the workforce in 2020. In December, women accounted for 100% of the 140,000 jobs lost, while men gained 16,000 jobs.
Women have been disproportionately affected by COVID-19 job losses and school closures. According to the National Women’s Law Center (NWLC), “the crippling burden of childcare and remote learning has fallen much more heavily on mothers than on fathers, leading many women to stop working or even looking for work.”
So, if you’re no longer working – whether that’s due to job loss or perhaps you left the workforce to be a caretaker – you’re probably curious about how that’ll impact your taxes. With just a few weeks until tax season begins, we’ll help walk you through everything you need to know.
How to file your federal income taxes
A guide to filing your taxes
There’s a lot to know when it comes to taxes, and everyone’s situation will be a little different depending on where you live, specifics about your household, your income level and more. The good news is that most tax-filing programs will walk you through the process – you won’t need to be an expert.
Who should file taxes
Not everyone needs to file a tax return every year. Any U.S. citizen or resident who paid taxes during the year and earned above a certain level of income is required to file a tax return.
If you’re under 65 and typically a single filer, you should file if your income was $12,400 or more during the year. If filing jointly, you should file if your combined income exceeded $24,800. Even if you aren’t required to file, you may want to if you’re eligible for a tax return.
When to file taxes this year
The 2020 tax season begins a bit later this year. The IRS has announced they will begin accepting tax returns on February 12, 2021. The deadline for filing your taxes is April 15th, 2021 – though it’s possible the IRS extends that deadline given that many people may have changed or confusing circumstances after 2020.
If you need an extension for filing your 2020 tax returns, you must request the extension before October 15th, 2021.
Documents and forms needed to file your taxes
You’ll need basic personal information like Social Security numbers, date of birth and any tax ID number you have for the person filing and any dependents you plan to claim.
If you pay for childcare, you’ll also want any childcare records (like the providers’ tax ID number) in order to collect relevant tax credits. It’s also best to collect receipts and expenses if you donated to charity, run your own business, are self-employed, are a teacher (classroom expenses), are a student (school-related expenses) and if you have relevant medical expenses.
Depending on your particular income portfolio, you could receive just one tax form or quite a few. Here are some of the most common:
- W-2 (if employed)
- 1099-G (if unemployed)
- 1099 or 1099-NEC, 1040-ES (if self-employed)
- 1099-INT, 1099-OID, or 1099-DIV (for any interest or dividend income)
- 1099-B, 1099-S (income from stocks or property)
- 1099-SA or 1099-LTC (Health Savings Account and long-term care reimbursement)
- 1099-C (canceled debt)
- 1098 (home ownership/mortgage interest)
- 1095-A (health insurance if enrolled through Marketplace)
- 1098-T (if enrolled in school, from educational institutions)
- 1098-E (if you paid student loan interest)
- 5498 series (if you contributed to HSA, IRA or other retirement/savings account)
You should receive these forms in the mail or electronically during the beginning of the year from your employer, payroll company or relevant responsible party.
How to determine your filing status
Your filing status will determine the tax deductions and credits you are eligible for as well as requirements for filing. Your status is essentially determined by your marital status and household. You may qualify for more than one type of filing status, but will want to calculate which results in your owing less taxes.
- Single. If you are not married, including legally separated or divorced.
- Married filing jointly. If a married couple wishes to file their taxes as one household. This is typically more tax beneficial for a married couple.
- Married filing separately. If a married couple wishes to file individually. There are some scenarios where you may owe less taxes if you file separately.
- Head of household. If you are unmarried but pay more than half the cost of keeping up a home for yourself and another qualifying person. This often applies to single mothers.
- Qualifying widow with dependent child. If your spouse passed away and you have a dependent child. You can use this filing status for two years following the year your spouse has passed.
How to choose a tax filing method
You can either file your taxes yourself using the IRS Free file or a tax software program, or hire a Certified Public Accountant (CPA) to file your tax return for you.
If you file directly with the IRS, you won’t receive any guidance about which forms you need or what deductions you’re eligible for. You’ll have to calculate everything on your own.
A tax software program like TurboTax or H&R Block can help automate a lot of the process and help you fill out the correct tax forms. If you have a simple tax situation, a software program can take you less than 20 minutes to complete. It may cost you some money to file, but only once you hit a certain income level.
Hiring a CPA is always an option, too. If you run your own business, are self-employed, have foreign income or any other complex tax situation, you may want to consider hiring professional help when filing your taxes. A CPA can help you plan for taxes ahead of time, too, and prepare for deductions that may lower your overall tax bill.
How to calculate your tax bracket
Your tax bracket will determine what percentage of tax you pay on your income. Higher income levels are taxed a higher percentage and vice versa. Tax brackets change a little bit every year to account for inflation and as new tax reform bills are passed. The tax rates will also vary depending on your filing status.
Here are the tax brackets for the 2020 tax year.
|Single||Married filing jointly||Married filing separately||Head of household|
|10%||Up to $9,875||Up to $19,750||Up to $9,875||Up to $14,100|
|12%||$9,876 to $40,125||$19,751 to $80,250||$9,876 to $40,125||$14,101 to $53,700|
|22%||$40,126 to $85,525||$80,251 to $171,050||$40,126 to $85,525||$53,701 to $85,500|
|24%||$85,526 to $163,300||$171,051 to $326,600||$85,526 to $163,300||$85,501 to $163,300|
|32%||$163,301 to $207,350||$326,601 to $414,700||$163,301 to $207,350||$163,301 to $207,350|
|35%||$207,351 to $518,400||$414,701 to $622,050||$207,351 to $311,025||$207,351 to $518,400|
|37%||Over $518,400||Over $622,050||Over $311,025||Over $518,400|
Tax deductions vs. tax credits
A tax deduction is subtracted from your taxable income, and thus lowers the amount of taxes you pay. If you qualify for a $5,000 tax deduction and are in the 10% tax bracket for example, it would lower the amount of income that is taxed by 10%, which could save you $500 in taxes.
A tax credit is an exact dollar-for-dollar subtraction from the amount of taxes you owe. So a $1,000 tax credit would mean $1,000 less in taxes you owe. Tax credits can also be claimed even if you don’t owe taxes – meaning if you qualify for a $1,000 tax credit, you can get a $1,000 tax refund.
Standard vs. itemized deductions
Most people filing taxes will claim a standard deduction. It’s a general deduction that you can choose over itemizing everything you may qualify for. For the 2020 tax year, the standard deduction is $12,500 for single and married filing separately, $18,800 for head of household filers and $25,100 for married filing jointly. There are some deductions that you can file in addition to the standard deduction, like a student loan interest deduction.
Alternatively, you can choose to itemize deductions. To itemize means you tally up all the expenses that qualify for a deduction on your taxable income. There are hundreds of potential deductions you can make, like medical expenses, property taxes, state taxes, small business expenses, etc. It’s possible that your itemized deductions will add up to be more than the standard deduction, which means you’ll pay less in taxes.
Tax credits to know
There are dozens of potential tax credits that you can qualify for. Here are some key tax credits that may be relevant to you this year:
- Child tax credit. Up to $2,000 per child if you pay for childcare for children under 17 and have an income of at least $3,000.
- Earned Income Tax Credit (EITC). For working low- to moderate-income households. There is a one-time look-back provision that allows you to use your 2019 income if you don’t qualify for the credit with your 2020 income. You can choose the year that will generate a bigger tax break.
- American opportunity tax credit (AOTC). Up to $2,500 per student for education expenses for your first four years of college.
- Lifetime learning credit. Up to $2,000 for tuition and expenses for undergraduate, graduate and professional degree courses. No limit on how many years you can claim it.
- The saver’s credit. Up to $1,000 ($2,000 for couples) for contributing to retirement plans by low-income taxpayers – married couples income under $65,000 and single taxpayers under $32,500 to qualify.
Paying your tax bill and getting a refund
After you’ve filed your taxes, the IRS will determine whether you owe taxes or they owe you a tax refund. You’ll pay the IRS directly if you do owe taxes, via electronic payments, debit or credit cards, checks, wire transfers and even cash.
If you’re receiving a refund, it can be sent directly to your bank account or via a paper check. This often occurs within a month of filing your taxes.
If you’ve been on unemployment this year, you may owe taxes
Unemployment benefits are considered taxable income. If you did not elect to have taxes withheld from unemployment payments during the year, you could owe taxes depending on how much you received. You should receive a tax form, 1099-G if you received unemployment that will detail how much compensation you received.
Stimulus checks won’t impact your taxes
If you received an economic stimulus check from the government in 2020, it will not count towards taxable income. There’s no need to claim them or worry about how that money will impact your tax return.
Despite a tumultuous 2020, taxes this season haven’t changed much. If your situation has become more complicated this year, know that there are plenty of other people figuring it out for the first time too. Online resources are abundant and don’t be afraid to ask for professional help with your tax filing – many free tax software programs offer help lines too.