When Is the Best Time to File My 2020 Tax Return?

Including COVID-19 Tax Issues to Be Aware Of

Workers dealing with tax for small business.
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The 2021 tax season for filing 2020 tax returns will be different from previous tax seasons, largely because of the restrictions on in-person meetings with tax professionals and other COVID-19 issues. For example, visiting an Internal Revenue Service (IRS) office will mean scheduling an appointment and following COVID-19 safety guidelines. 

Here are some tips if you’re wondering when is the best time to file your 2020 tax return.

Tax-Filing Deadline Changes in 2021

The IRS has announced that the usual April 15 tax-filing deadline is extended to May 17, 2021, in response to the ongoing pandemic. This applies only to individual tax returns, however, not corporate returns. Payments aren't due until this date, either, with the exception of quarterly estimated tax payments, which are still due by April 15. Otherwise, penalties and interest won't begin to apply to outstanding taxes due until after May 17.

Victims of the February 2021 winter storm also have additional time to file their personal and business tax returns and make tax payments, until June 15, 2021. This delay includes the entire state of Texas and other declared disaster areas from the storm, including Oklahoma and Louisiana. Tax returns and payments due starting on February 11 and subject to the delay include business payroll taxes and excise taxes.

File as Early as Possible

Filing early is almost always best, and e-filing is quicker and safer than filing a paper return. 

You can also avoid identity theft by filing early. New Jersey-based CPA Gail Rosen said, “The IRS will only allow one tax return per Social Security number each year. Therefore, the best protection against identity theft is to file your taxes early.” 

File Electronically and Use Direct Deposit

Mailing in returns can result in delays in filing and getting refunds. By filing electronically, however, the IRS receives your tax return faster, and you can check the status of your return and refund online sooner, and if you e-file, you can usually check your status within 24 hours. It can take four weeks to be able to check your return status if you file a paper return. 

There is an exception: Your refund won’t be issued until the first week in March, at the earliest, if you're claiming the Earned Income Tax Credit or Additional Child Tax Credit.

Filing and Paying Income Taxes 

You can file your income tax return without paying the taxes due, but make sure you make payments by the due date to avoid interest and penalties. Filing options include commercial software or tax preparers that are authorized e-file providers.

Another filing method is IRS Free File, which is available through the agency’s tax prep and filing software partners and has two options: 

  • Income $72,000 and below: Use a partner site with guided preparation, including state tax filing (free with some offers).
  • Income above $72,000: Use fillable forms if you know how to prepare paper forms, with no state tax filing.

If you're worried about the security of e-filing, the IRS says Free File uses the latest in encryption technology, and you can check your refund status 24 hours after you file that way. 

You can pay your income taxes in several ways:

  • Use electronic funds transfer (EFT) when you file
  • Direct pay through your bank account
  • Use a debit card or credit card
  • By check or money order
  • Cash

Businesses can also use the Electronic Federal Tax Payment System (EFTPS) to pay their taxes. The IRS offers guidance on this and other tax payment methods.

Tax Season 2021 Information 

The 2021 tax season for filing 2020 tax returns began on February 12, 2021. That’s when the IRS began accepting electronic and paper tax returns. 

Although the 2020 tax filing season didn't open until February 12, 2021, the IRS opened up Free File availability beginning January 15, for taxpayers who make $72,000 or less. Completed tax returns were held until they could be filed electronically after February 12.

Start Now to Gather Information 

Before you file your 2020 tax return, start preparing by gathering information and collecting documents that come in from various sources. The more quickly you get this information, the sooner you can file your 2020 return.

Begin by reviewing your 2019 tax return, noting sources for payments and deductions, and making a check-off list for 2020. If you're receiving payments from someone new or you have new deductions, note these as well. 

Documenting Income

You might receive tax documents in January. Some of the most common are:

  • Form W-2 from your employer
  • Form 1099-NEC from anyone who paid you $600 or more for work you did as a non-employee (This is a new form beginning in 2020 that replaces Form 1099-MISC for payments to self-employed people, freelancers, and others.) 
  • Form 1099-MISC for miscellaneous payments, like rents or royalties 
  • Other 1099 forms for other income, including dividends and interest

Don’t forget to gather documents on your transactions involving bitcoin and other virtual currencies. These transactions are taxable just like transactions in any other property. 

Contact the payer immediately if you believe you've earned income from someone in 2020 but haven’t received the correct tax form by the end of January. You won’t be able to verify income without it, and it will delay filing your return. 

Economic Impact Payments 

Economic Impact Payments you received in 2020 aren’t taxable, so you shouldn't include these payments on your tax return. You should have received Notice 1444 by mail after you received this payment. You can refer to it and claim a Recovery Rebate Credit if you think your payment amount is wrong.

Unemployment Benefits

Unemployment compensation is normally taxable. You would have to have taxes withheld from these payments or make estimated tax payments during the year to avoid being subject to penalties. But the American Rescue Plan Act (ARPA), signed into law in March 2021, provides a special exemption for tax year 2020. The first $10,200 of unemployment benefits are tax exempt for taxpayers with modified adjusted gross incomes of less than $150,000 for this one year only.

Do not file an amended tax return if you filed your 2020 return before the ARPA was passed so you reported your unemployment compensation as income. The IRS indicates that it will recalculate all returns that report unemployment benefits and issue any resulting refunds in spring and summer of 2021.

Your state might or might not conform to this rule. Some always exempt unemployment compensation from taxation, with or without a pandemic. Others have indicated that they'll follow the ARPA ruling. Still, others will continue to tax unemployment benefits just as they always have. Your best bet would be to check with your state to be sure.

Sick Leave or Family Leave Payments

COVID-19-related sick leave or family leave payments from your employer are taxable income, and these payments will be included in your W-2 form. 

Deferral of Social Security Withholding

You'll see this change on your 2020 W-2 form if you opted to defer Social Security tax withholding from September 1 through December 31, 2020. You'll have to make arrangements with your employer to repay the amounts deferred by increasing your withholding after January 1, 2021.

Read this article for more information on COVID-19-related law changes that might affect 2020 tax returns for individuals and businesses. 

How to Get Help From the IRS