The tax return is there. The California Franchise Tax Board (FTB) and the Federal Internal Revenue Service (IRS) are now accepting and processing returns for 2020 income. Following changes to the tax law in December 2020, the IRS made program updates that enabled a second round of economic impact payments . As part of these changes, Eligible Individuals will receive all Stimulus Funds not yet received as a Refund Credit when filing a federal tax return for their 2020 income.
For faster refunds and greater accuracy, taxpayers are encouraged to submit electronically and provide their direct deposit information. The deadline for filing and paying taxes due ends on Thursday, April 15, 2021. For this registration season, the FTB expects to process 20 million PIT (Personal Income Tax) declarations. The IRS expects PIT returns in excess of 150 million.
Earned Income Tax Credit and Infant Tax Credit
Federal Earned Income Tax Credit (EITC) and California Earned Income Tax Credit (CalEITC) help low-to-middle-income workers and families get tax breaks. The credit is refundable which means that not only will it reduce the taxes owed, but it will also be returned to a filer who is not tax owed. This year the authorization for CalEITC was extended to taxpayers with an individual tax identification number.
For the 2020 tax year, unemployment benefits and other unearned income can affect the amount of earned income that an employee can claim. However, under the Federal Taxpayers Safety and Disaster Tax Relief Act of 2020, people can choose to use their 2019 income to calculate the federal EITC if their 2019 income is above income from the 2020 is but is still within the EITC eligibility limits, thereby maximizing their credit.
Individuals who earned less than $ 30,000 in 2020 can qualify for CalEITC. Individuals who qualify for CalEITC and have a child under the age of six can also apply for Young Child Tax Credit (YCTC) of up to $ 1,000. Those who earn less than $ 56,844 can also qualify for the federal EITC. Taxpayers can estimate their credit using FTB’s loan calculator.
Golden State Stimulus
Governor Gavin Newsom’s proposed budget for fiscal year 2021-22 includes a one-time payment of $ 600 to individuals who have applied for the CalEITC based on their 2020 tax returns. On February 17, lawmakers agreed on the proposal, providing another way to help low-income Californians who suffered lost incomes during the COVID-19 pandemic.
CalFile and Volunteer Income Tax Assistance
FTB offers free electronic filing for many government tax returns through CalFile, an easy-to-use tool available to more than 6.5 million taxpayers. With CalFile, taxpayers can email FTB directly and receive an instant confirmation when the return is received. CalFile is available to those who claim CalEITC and YCTC, to those who claim the standard or individual deduction, and to those with incomes up to $ 400,000.
Income Californians who need help filing a PIT declaration can also find help through the Volunteer Income Tax Assistance (VITA) program locations across California. For reasons of public health during COVID-19, some VITA locations will be operated virtually, while others will be held in person with an appointment. In addition, taxpayers can file a federal tax return online using the IRS Free File program.
FTB customer service
FTB communication channels provide services and information to enable taxpayers to file accurate and timely tax returns and pay the reasonable amount owed. FTB communication channels include a customer service line at (800) 852-5711, an accountant hotline, authenticated chats, and field office support. FTB communication channels were accessed more than 2.1 million times in the last tax season.
FTB offers many online tools including MyFTB and the Where’s My Refund tool. With the MyFTB service, taxpayers can view their tax documents, check due balances, access tax calculators and send secure messages to FTB employees. It typically takes up to two weeks to receive a refund for e-files returned and up to four weeks for a paper return. With the “Where is my refund?” Can taxpayers check the status of a refund?
Small Business Tax Credit on Main Street
A Small Business Tax Credit on Main Street was available to qualifying small businesses for the 2020 tax year. The loan was intended to provide financial relief to small businesses that suffered economic disruptions in 2020 that resulted in unprecedented job losses. Credit was only available to California small businesses who met the following qualifications:
Employees 100 or fewer employees as of December 31, 2019; and
Comparing the second quarter of 2020 to the second quarter of 2019, the gross income from income tax fell by 50 percent or more.
Taxpayers have had the option to use the credit against income taxes or make an irrevocable choice to apply the credit against sales and use taxes. The California Department of Taxes and Fees Administration (CDTFA) is responsible for allocating credits based on availability. The reservation process is now complete. 70 percent of the loan was accounted for by income taxes and the remainder by sales and use taxes. The loan was capped at $ 100 million. The governor’s budget for fiscal year 2021-22 provides an additional $ 100 million for this program.
Suspension of Net Operating Loss
For the 2020-2022 tax years, California has suspended net operating loss allowance (NOL). Taxpayers with net business income, modified adjusted gross income (PIT taxpayers), or taxable income (corporate taxpayers) less than $ 1 million – or with catastrophe losses – are not affected by the NOL suspension.
Taxpayers can still calculate and transfer a NOL during the embargo period. The transfer period for suspended losses is extended by:
- Three years for losses in tax years beginning before January 1, 2020;
- Two years for losses in 2020; and
- A year of losses in 2021.
The application of all credits is limited for the tax years 2020 to 2022. For PIT applicants, the total of all business loans including business loan transfers for the tax year cannot reduce “net tax” by more than $ 5 million.
For corporate taxpayers, the total of all credits, including credit transfers for the tax year, cannot reduce “tax” by more than $ 5 million.
For taxpayers included in a combined report, the group level restriction applies. Credits that are not permitted due to the restriction can be transferred. The transfer period for unapproved credits is extended by the number of tax years in which the credit was not admissible. The restriction does not apply to the low-income housing tax credit.
Beginning with the 2020 tax year, California individuals and other PIT applicants will be able to claim credits and deductions for business expenses paid or accrued for conducting commercial cannabis activities during the tax year. Before this change, the PIT law was equivalent to federal law that did not allow any deductions or credits for commercial cannabis activities. Under corporate tax law, a licensee engaged in commercial cannabis activities is allowed otherwise permissible deductions or credits, provided the company has sufficient records to substantiate those points.
COVID-19 Payments for Economic Impact
Individuals received by the federal government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 and payments received under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSA) are not subject to California income tax .
Unemployment benefits, including the $ 600 per week increase in unemployment benefits legally obtained under the CARES Act and the $ 300 per week legally obtained increase under CRRSA, are not subject to California income tax.
Forgiveness of the paycheck protection program
For tax years beginning on or after January 1, 2020, California provides gross income exclusion for covered loan amounts that are subject to the CARES Act, the Paycheck Protection Program (PPP) and Health Care Enhancement Act, or the Paycheck Protection Program Flexibility Act of 2020.
The Consolidated Funds Act, signed in December 2020, provides for deductions for eligible expenses paid with covered loan amounts that would or would reasonably be expected to be granted under the PPP. Starting February 17, California is considering partial compliance by allowing companies to deduct up to $ 150,000 in expenses covered by the PPP loan.
Gig Economy and Worker Classification
The gig economy, also known as the sharing economy or access economy, encompasses activities where people earn income by providing work, services or goods on demand. Often this is done through a digital platform such as an app or website. The income from this activity is taxable and must be shown in a tax return, even if the income:
- From part-time, temporary work or ancillary work;
- Not reported on an information return form such as a 1099-K, 1099-MISC, W-2, or other income statement; or
- Paid in any form including cash, property, goods, or virtual currency.
Due to recent changes to California law, the California Labor and Workforce Agency has developed a number of frequently asked questions to help the public understand the current guidelines for classifying workers.
Sanction penalties for tax returns in 2021
Last year, a new state law required Californians to have qualified health insurance coverage year round. Those who do not have qualified health insurance coverage will face a fine of $ 750 or more for filing their tax returns. The penalty for a dependent child is half that for an adult. A married couple without insurance could face a fine of $ 1,500 or more. For a family of four with two dependent children, it could be $ 2,250 or more. Health insurance and financial aid are available through Covered California.
This article was published by the California State Controller’s Office.
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