Tax time can mean a lot of things to different people. For some, it’s a sign that some much-needed cash is on its way, for others, it may signal that a big bill is due. Regardless of how you feel about the season, this year, tax time is going to look different for a lot of us. Below are some tips for handling your taxes post-pandemic.
Stimulus Check and Taxes
When you file your taxes, you may see a question asking if you received your stimulus check and how much it was for. Not to worry – the income from your stimulus check is non-taxable. In fact, the stimulus check was designed as an advance tax credit. If you haven’t received your stimulus check yet and you were eligible for one, you can claim it on your taxes.
File For Free
Don’t pay to file your taxes! Most individuals are eligible to file for free, either on your own or with assistance. Money you’re not spending to file your taxes is money in your pocket!
RALs Can Delay Your Next Stimulus Check
RALs, or Refund Anticipation Loans, are short-term loans offered by some major tax preparers as an advance on your tax refund. While these may be convenient, they can delay your next stimulus payment, since they are processed through a third-party. The most effective way to receive your stimulus payment is to have direct deposit enabled with the IRS.
New Tax Credits
The Child Tax Credit has been increased to $3,000 for each child ages 6-17 and $3,600 for children under age 6. The Child and Daycare Tax Credit has now also been increased to 50% of expenses. Up to $4,000 for families with one child and $8,000 for families with two children or more. The first $10,200 of unemployment benefits have also been shielded from taxes for families making $150,000/year or less.
Save Your Refund, If You’re Able
Saving some or all of your tax refund for a rainy day is always a good idea. But with the added ongoing uncertainty, it’s always good to have some money tucked away for emergencies. We recommend having at least $500-$1000 in an emergency fund. If you have debt, you may consider using a portion of your tax refund to pay down your highest-interest debt. If you don’t have much debt, consider creating a savings account to have three months’ worth of living expenses saved up in case of an emergency. With direct deposit enabled, you can even request your refund be deposited directly into your savings account.
If you need help with a custom cash-flow budget and a financial roadmap to save, consider a Financial Health Plan. Using your refund to whip your finances in shape is the best investment you can make.
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