The IRS has issued a notice assuring taxpayers and tax professionals that tax forms and instructions will reflect all changes made by the numerous tax laws enacted as a result of COVID.  Although not all returns are ready, the majority of the forms are and these have been made available to IRS partners who develop the software used by taxpayers to file tax returns.

The IRS announced the start date of the filing season will be February 12, but its Free File program opened in mid-January. The IRS is encouraging all taxpayers to prepare and file their returns electronically and to have refund checks directly deposited. The agency has not yet recovered from the closures due to the pandemic and is till processing 2019 paper returns. The quickest way to get a refund is to file electronically and have the funds directly deposited into a bank account.

Changes Effective this Year

Recovery Rebate Credit: For those who did not receive their economic impact payment, or who received less than the full amount, during 2020, the return includes an opportunity to claim the recovery rebate credit if all requirements are satisfied. The instructions include a worksheet to help taxpayers calculate whether they are entitled to a credit and the amount of the credit. These can be found on page 59 of the instructions. https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Earned Income and Additional Tax Credits: Taxpayers may use their 2019 income amount in computing the earned income tax credit and the additional child tax credit. This change was made to help taxpayers who were impacted by a job loss or a change in their 2020 income.

Charitable Contributions: Taxpayers who claim the standard deduction on their return can claim a charitable contribution deduction of up to $300 in 2020. The deduction does not apply to donated property. For married individuals filing separate returns the deduction is limited to $150.

Multi-Factor Authentication: In order to protect taxpayers and tax professionals multi-factor authentication will be available on all 2021 online tax return preparation products. This type of authentication requires users to enter two pieces of information in order to access the account/application. All software providers agreed to make multi-factor authentication a standard feature for 2021 and also agreed to meet the requirements set by the National Institute of Standards and Technology.

The authentication feature is optional and the user must opt into it. The IRS highly recommends that the feature be enabled as it is a deterrent to thieves who have stolen passwords from tax professionals through the use of malicious software. Once a thief has access to the professional’s network and tax software account, the thief can complete a taxpayer’s return on behalf of the professional, alter the refund information and use the practitioner’s e-filing and preparer credentials to file the fraudulent return with the IRS. If the multi-factor authentication feature is enabled, a thief’s efforts to access the practitioner’s and taxpayer’s account would be thwarted as the thief would have one form of identification, but not the ability to receive the security code.

The IRS recognizes that no product or safety measure is fool-proof, but multi-factor authentication does reduce the likelihood that a taxpayer or tax professional will become a victim of tax related theft.