From Harvard Law Today:
The coronavirus pandemic upended almost everything in our lives last year, so it came as little surprise when, in an effort to support American taxpayers — and perhaps catch its breath after issuing three rounds of stimulus checks — the Internal Revenue Service extended the 2020 income tax filing deadline to May 17.
But that’s not the only thing that may make things interesting for filers. For the millions of people who worked from home (or from a new state), and the millions of others who received unemployment when businesses shuttered, Tax Day could be slightly more complicated this year.
Keith Fogg, clinical professor of law at Harvard Law School, and his students in the Federal Tax Clinic, answered Harvard Law Today’s questions via email about some common issues taxpayers are facing this year, how their clinic is helping low-income taxpayers, and how President Biden’s proposed changes to the tax code and IRS might affect next year’s filings.
Harvard Law Today: A Gallup poll from October 2020 found that more than half of American workers “always” or “sometimes” worked from home last year. What does that mean for taxpayers?
Keith Fogg: Working from home should not have much of an impact on federal taxes for most taxpayers. There might be some additional deductions that individuals can claim as a result of working from home, but in general, the location of the work site will make little tax difference.
The unusual circumstances of 2020 caused some issues for individuals and business that would not occur in a normal year. Congress has passed legislation to deal with some of the more obvious tax implications of everyone staying home, but may not have covered everything. Some examples occurred in the area of child care assistance programs, medical savings accounts, credits based on working, and others.
Because people stayed at home and may not have used child care, either because it was not open or because they chose not to do so, some people might have had some dependent care funds set aside through their employer that were not used and need to carry those over. Some people may have had health savings accounts they did not tap because they stayed home and did not go to the doctor. Many individuals at the lower end of the income scale lost their jobs. Some benefits pushed out through the tax code, like the earned income credit, are based on earned income. Congress passed legislation allowing individuals to choose to use their 2019 income to qualify for or to receive a higher amount of the earned income tax credit in 2020.
The pandemic caused a shift in many people’s income for a variety of reasons and Congress created stimulus payments and other targeted relief provisions to try to address the more common types of problems, but generally speaking, just working from home rather than an office does not have a significant tax impact.