The economic consequences of the pandemic are testing people’s fiscal knowledge, and they are not happening with great success. A new survey indicates that many American adults are unaware of critical issues this tax season, such as how the Internal Revenue Service handles stimulus checks and whether remote workers can claim a tax deduction from home.
Only 5% of more than 1,000 people surveyed by NORC at the University of Chicago correctly answered five true or false questions about the tax code. People, on average, correctly answered almost three (2.89) of the five questions. Let’s face it: even in normal times, understanding the myriad of rules and regulations is a tall order. In 2018, almost half of the people in a survey did not know what tax category they were in. That reflects America’s broader challenges with financial literacy. Spread out all the complications of COVID-19 for taxes, and getting through the tangle of the tax code becomes even more complicated, and the stakes are higher now for people who don’t know the ins and outs. The CARES Act of 2020 and a $ 900 billion relief bill in December introduced significant changes to the federal tax code. So did the $ 1.9 trillion American Rescue Plan enacted in March. As a result, the stakes are high on the 2020 tax return. It‘s the last chance to claim the money from last year’s lost stimulus check, although people can also try relying on parts of their 2019 return to maximize their payment. under certain credits. From May 17 to April 15, but kept the April 15 payment deadline on estimated payments, which is a key point for concert workers. It’s no wonder a person’s head is spinning. Still, the extent of the wrong answers surprised Angela Fontes, the survey’s lead researcher and vice chair of the NORC Department of Economics, Justice and Society. “This is a year in which, for many people, a refund will be of the utmost importance,” he said, adding: “If we have people who potentially don’t understand the tax code, in the worst case, the IRS will consider the mistake. intentional. In the best of cases, the refund checks could be delayed. ” As of March 26, the IRS had received 85 million refunds and issued 56.4 million refunds. The average refund check for that date was $ 2,902. Higher-income survey participants generally performed better on the questionnaire, even though Fontes said lower-income participants were the least able to afford a lack of knowledge about how to get every last dollar in taxes. . “It is these people who are likely to be most at risk of financial insecurity who are also least knowledgeable about tax issues.” Here are the questions. The answers are at the end of the article. People do not have to pay taxes if they do not earn any income. True or false? If someone worked from home instead of their usual workplace last year, they can claim their home office as a deduction for their taxes. True or false? People don’t have to pay taxes on what they received on their stimulus checks. True or false? People do not have to pay taxes for unemployment benefits. True or false? Income earned from gig economy jobs is still taxable. True or false? For the first question, the answer is false. The IRS will certainly tax earned income, but it says unearned types of income are taxable. This includes child support, alimony, interest, and dividends. The fewest number of people got the poll right. 21% of people making less than $ 30,000 answered this correctly. About 30% of the people in each of the other three income groups ($ 30,000 to $ 60,000, $ 60,000 to $ 100,000, and more than $ 100,000) answered correctly. For the second question, the answer is false. The tax code offers a tax exemption for work from home expenses, but the deduction does not currently apply to people who are employees. It applies to people such as self-employed taxpayers and independent contractors who, according to the IRS, have to show that they are using part of their home “exclusively and regularly as the principal place of business for a trade or business.” The correct answers ranged from about a quarter of the participants making less than $ 30,000 to 41% of the people making more than $ 100,000. For the third question, the answer is true. Stimulus controls, whether from the first, second, or third round, do not count as taxable income. This is one of the many myths that swirled about impact payments. In the questionnaire, it is also the exception to the rule that higher-income participants are more knowledgeable about taxes than lower-income participants. 65% of people who earn more than $ 100,000 answered the question correctly. 76% of people making less than $ 30,000 answered correctly. The wealthiest survey participants may have been less likely to receive the checks, Fontes said. The completed checks were for individuals earning up to $ 75,000 and married couples filing jointly and earning $ 150,000. Lower-income participants may also be aware of the intricacies of the stimulus check rule because “it’s probably the people who are counting every penny of those stimulus checks,” Fontes said. For the fourth question, the answer is false. Taxpayers have to pay taxes on the unemployment benefits they receive in one year. The American Rescue Plan modified federal rules on the matter, fueled in part by concerns from some lawmakers that many people would be caught off guard by this tax rule after a year of massive job losses. The American Rescue Plan exempts from federal income tax on the first $ 10,200 in unemployment benefits that an individual receives and the first $ 20,400 in benefits that a married couple receives, as long as the household earns less than $ 150,000. If a taxpayer already filed their return before the exclusion became law, the IRS will automatically readjust the return. State income tax rules may differ. NORC noted that it conducted the survey before the $ 10,200 exclusion became law. The answer to the fifth question is false. Yes, taxpayers have to pay taxes for their “side job,” and this was the question that most people answered correctly. Correct response rates ranged from 64% of people earning less than $ 30,000 to 91% of people earning more than $ 100,000. A paycheck from an employer already has income tax deducted and Social Security taxes. A person who is their own boss still has to pay taxes, but they have to do it themselves. Contract workers can make those payments in four installments during the fiscal year. Although May 17 is the deadline to file 2020 federal income taxes and pay the taxes owed, April 15 marks the first of four deadlines for estimated payments during fiscal year 2021. “Talk about confusion, not just for the professional tax community, but for individual taxpayers as well, “Barbara Weltman, founder of Big Ideas for Small Business and author of the” JK Lasser Self-Employment Guide, “previously told MarketWatch.