What to know about coronavirus tax relief

This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma.

The financial impact of the COVID-19 pandemic has spurred the federal and state governments to take steps to help bolster the economy, including offering multiple forms of coronavirus tax relief.

In the first two months of the coronavirus pandemic, the federal government passed multiple pieces of rescue legislation. The bills put numerous measures in place, including coronavirus tax relief, to support affected individuals and businesses. 

Most states have also followed suit. All have delayed tax filing and/or payment deadlines, and many have fielded their own tax relief packages. 

Let’s look at available coronavirus tax relief and how it might help your financial situation during and after the crisis.

• What is coronavirus tax relief?
• What federal coronavirus tax relief is available?
• What about state coronavirus tax relief?
• What other types of tax relief are available?

What is coronavirus tax relief?

The coronavirus pandemic has created financial hardships for many Americans.

Stay-at-home orders and other measures to slow the spread of the virus have left millions unemployed. And 88% of Americans say COVID-19 has stressed their personal finances, according to an April 2020 survey by the National Endowment for Financial Education. And more than a third of respondents in a recent Credit Karma survey say COVID-related anxiety and stress has caused them to impulse spend.

During times of economic uncertainty, governments may provide tax relief by taking steps to reduce or defer citizens’ tax obligations. Having your tax burden reduced — even temporarily — could help you weather a financial crisis.

What federal coronavirus tax relief is available?

The federal government has taken a number of steps to give people tax relief during the pandemic, including …

• Extending the filing and payment deadline for 2019 federal income taxes to July 15, 2020.
• Issuing stimulus payments to qualifying taxpayers. The payments are actually an advance tax credit on 2020 federal income tax returns.
• Postponing due dates for some IRS installment agreement and offer in compromise payments.
• Limiting IRS collections and some other enforcement actions, such as new tax liens and levies.
• Creating a $300 charitable contribution deduction that you don’t have to itemize to claim. This will apply to 2020 taxes.
• Relaxing tax rules to make it easier for those who qualify to borrow from their retirement plans during the crisis.
• Allowing people who receive help from an employer in paying their student loans to exclude those amounts from their taxable income.
• Allowing businesses and self-employed people to defer payment of a portion of payroll taxes due in 2020.

On its website, the IRS offers info to help people understand many of the federal coronavirus tax relief measures, including …

• Coronavirus tax relief and economic impact payments hub
• Stimulus check information center
• Get My Payment tool for checking stimulus payment status
• Get My Payment tool FAQs page
• Tool for non-filers to enter payment information
• Filing and payments deadline page

What about state coronavirus tax relief?

All 50 states and the District of Columbia have extended their tax return filing and tax payment deadlines for 2019 income taxes. Most adopted the same date as the federal extension — July 15, 2020 — although some have earlier deadlines. Most have also waived penalties and interest as long as any tax owed is paid by the new due date.

Some states have taken additional measures to provide tax relief. Here are a few examples.

• Arkansas passed a law that exempts federal stimulus payments from being subject to state income tax. Note that stimulus payments aren’t taxable at the federal level either since they’re actually advance tax credits.
• Kentucky, Michigan and New York are considering bills that would provide tax breaks for Americans involved in COVID response, such as first responders and disaster response businesses.
• Minnesota extended the due date for filing property tax appeals.

The National Conference of State Legislatures has compiled an extensive list of legislation that states have passed or are considering in response to the pandemic.

The best way to find out what coronavirus tax relief and other pandemic-related measures your state is providing is to check your state’s website. Many states have put general coronavirus response information on their home pages, and revenue department pages may provide tax relief information.

What other types of tax relief are available?

The federal government and state governments don’t just limit tax relief to times of crisis. Tax relief measures that were available before the pandemic upended the American economy may still be available. And if your financial situation has changed because of the outbreak, you might now qualify for some types of relief you weren’t eligible for before.

Here are some examples of federal tax relief you may be able to qualify for during the 2020 tax year.

Earned income tax credit

The earned income tax credit is a federal credit for workers who have low to moderate earned income. You must have at least $1 of earned income but no more than a certain income limit in a tax year to be eligible for the credit. For 2020, you can’t have more than $3,650 of investment income to qualify, and you must meet the following income limits:

Be aware that unemployment benefits don’t count as earned income for purposes of this credit. So, if you lost your job because of the pandemic and went on unemployment, you’ll need to have earned at least $1 from a job or self-employment in 2020 in order to be eligible for the earned income credit.

Child and dependent care credit

If you have a qualifying child or other qualifying dependent and paid someone else to care for them while you worked or looked for work, you may be able to claim this credit. To be eligible, you’ll have to meet additional qualifications, such as having earned income. Again, unemployment doesn’t count as earned income for purposes of claiming this credit.

Child tax credit

If you meet all the eligibility requirements, including income limits, this credit was worth up to $2,000 per qualifying child in 2019. That’s likely the amount the credit will be for 2020, unless Congress acts to change it.

Itemized deductions

Depending on your financial situation, you may be able to take certain itemized deductions for 2020 that could help reduce your tax liability. These could include …

• Medical and dental expense deduction
• Home mortgage interest deduction
• State and local taxes
• Charitable contributions

Generally, it only makes sense to itemize if all your eligible deductions exceed the standard deduction amount for your filing status. Here are the standard deduction amounts for 2020.

• $24,800 for married couples filing jointly
• $12,400 for single filers and those married filing separately
• $18,650 for head of household filers

Is unemployment taxable?

Unemployment compensation is generally subject to federal income tax. And it may be subject to state income tax, as well, if you live in a state that taxes income. You can elect to have taxes withheld from unemployment to help avoid a big tax bill when you file your income tax return.

Bottom line

From extending tax deadlines to making direct deposits of stimulus payments, the federal government has taken steps to help make coronavirus tax relief more available to people struggling with the financial impact of the pandemic. You’ll have to do some legwork to determine if you’re eligible for any pandemic-related tax relief. Plus, you may be eligible for other types of tax relief, such as deductions or credits, property tax exemptions and direct relief programs.

Relevant sources:

IRS: Coronavirus Tax Relief and Economic Impact Payments for Individuals and Families | Govinfo: Coronavirus (COVID-19) | National Conference of State Legislatures: State Action on Coronavirus (COVID-19) | National Endowment for Financial Education | IRS unveils new People First Initiative …. | Coronavirus Aid, Relief and Economic Security Act | IRS: Deferral of employment tax deposits and payments through December 31, 2020 | State of Arkansas House Bill 1083 | Commonwealth of Kentucky General Assembly | Michigan Legislature Senate Bill 0900 (2020) | New York State Senate Bill S 8196 | Minnesota Legislature HF 4531 | IRS: Earned Income Tax Credit (EITC) Questions and Answers | IRS: Do I Qualify for the EITC? | IRS: Earned Income Tax Credit Income Limits and Maximum Credit Amounts | IRS: What is Earned Income? | IRS Publication 503 (2019) Child and Dependent Care Expenses | IRS: Unemployment Compensation | IRS Publication 972 Child Tax Credit and Credit for Other Dependents | IRS Form Schedule A, Itemized Deductions | IRS provides tax inflation adjustments for tax year 2020

Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.