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. 

If you’re wondering when is the best time to file your 2020 tax return, here are some tips.

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. In an email to The Balance, 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.  Additionally, 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: If you are claiming the Earned Income Tax Credit or Additional Child Tax Credit, your refund won’t be issued until the first week in March at the earliest. 

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 are 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 with Free File. 

You can pay your income taxes in several ways:

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

Businesses can also use the Electronic Federal Tax Payment System (EFTPS) system 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 begins February 12, 2021. That’s when the IRS begins accepting electronic returns and paper tax returns may be mailed after this date. 

Although the 2020 tax filing season doesn'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 will be held until they can be filed electronically after February 12.

For 2020 individual tax returns, the due date is April 15, 2021. There’s no indication that the IRS will extend the due date for 2020 tax filing. 

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 are receiving payments from someone new or you have new deductions, note those as well. 

Documenting Income

In January, you may receive tax documents, and some of the most common are:

  • Form W-2 form 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. 

If you believe you have earned income from someone in 2020 and you don’t receive the correct tax form by the end of January, contact the payer immediately. Without it, you won’t be able to verify income, and it will delay filing your return. 

Economic Impact Payments 

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

Unemployment Benefits

Unemployment compensation is taxable. If you didn’t withhold from these payments and you didn’t make estimated payments, you may be subject to penalties. The IRS provides information on how to report these benefits on your 2020 tax return.

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

If you opted to defer Social Security tax withholding from September 1 through December 31, 2020, you will see this change on your 2020 W-2 form. You will need 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