The past year has been particularly stressful on the mind, body and budget. The pandemic has upended how and where many educators work, adding technology and PPE expenses and shifting offices between school and home. Add to that confusion around stimulus checks and tax deductions. Here’s a rundown of what’s changed and what’s stayed the same for the 2020 tax year, as well as how you can make sure you receive all the coronavirus relief funds you’re entitled to.
The Educator Expense Deduction
The $250 above-the-line deduction for classroom supplies is still available for the 2020 tax year. This deduction is particularly advantageous because it’s above the line on Schedule A, which means you don’t have to itemize to take it and it reduces your overall adjusted gross income (AGI). Legislation in 2015 indexed the deduction amount to inflation, but it remains unchanged at $250 for 2020. If both spouses filing jointly are educators, each can claim the deduction, for a total of $500. This above-the-line deduction has become even more important since the 2017 tax reforms, which virtually doubled the standard deduction, setting the threshold even higher for choosing to itemize.
Classroom supplies may look a bit different this year, thanks to the pandemic. Teachers may count expenses for buying personal protective equipment (PPE) for the classroom—masks, sanitizer, Plexiglass, etc.—purchased after March 12, 2020, when claiming the $250 classroom supplies deduction.
As tempting as it may be to try, educators cannot deduct a dedicated home office or unreimbursed expenses above $250—at least on federal returns. The 2017 Tax Cuts and Jobs Act eliminated that deduction. However, there are a few states that do still allow it if itemized expenses are higher than the standard deduction: Alabama, Arkansas, California, Hawaii, Minnesota, New York and Pennsylvania. If you live in one of these states, consult your tax advisor to see what’s deductible.
COVID-19 relief funds and deductions
Charitable Donations Deduction. The 2020 CARES Act for COVID-19 relief provided another above-the-line deduction. That means that even if you don’t itemize, you can deduct up to $300 for donations to 501(c)(3) public charities, and the cap applies to both individuals and those married and filing jointly. This is not limited to educators, but like the educator expense deduction, it enables you to reduce your AGI.
Tax credits for the self-employed. Self-employed individuals—such as a self-employed tutor—may be eligible for qualified sick leave and family leave refundable tax credits if COVID-related quarantine or illness kept them from working or teleworking, or school closings and lack of child care required them to take care of children.
COVID-19 Recovery Rebate Credit. Those eligible for economic impact payments (also known as stimulus checks), but who did not receive all or part of them, may claim the Recovery Rebate Credit. The first round of stimulus was a payment of $1,200 for individuals ($2,400 for married filing jointly) plus $500 for each qualifying child. The second round was $600 ($1,200 for married) and $600 for each child. Eligibility in both rounds was an adjusted gross income less than $75,000 ($150,000 for married), though phased-out partial payments were made above those amounts. The Recovery Rebate Credit for both rounds can be claimed on your 2020 tax return even though many of the payments were made in early 2021.
If you didn’t file federal taxes in 2019, you may have missed getting stimulus payments. Even if you aren’t required to file a federal tax return, doing so will help you recover these payments.
State Sales Tax Deduction. Educators may also benefit from the state and local sales tax deduction (an alternative for states with no state income tax to deduct from federal taxes) even though those breaks don’t target them specifically. However, you must itemize in order to claim these deductions. For the 2018 tax year and beyond, the deduction for state and local taxes—including property taxes—was capped at $10,000 and the threshold for choosing to itemize became much higher with the increased standard deduction.
ADDITIONAL TAX SITUATIONS FOR EDUCATORS
Income from outside work, such as a summer job or tutoring
If there is no additional withholding on this outside work, you want to be sure to avoid a penalty for under-withholding—i.e., when your overall tax liability exceeds the amount of tax you had withheld by certain margins.
If this is the first year you’ve had extra income, there won’t be any penalty, because your withholding at work will cover 100% of your previous year’s income. If you regularly have extra income, consider specifying a certain additional amount on your W-4 to be withheld. (Previously, it was possible to adjust your withholding by reducing the number of personal exemptions but these have now been removed in the tax reform.) The other option is to make quarterly payments of estimated tax on the additional income.
The outside income should be reported on a Schedule C, where you can also deduct any expenses associated with the outside job. You are also liable for “payroll” taxes (these are the contributions to Social Security and Medicare) on the extra income, which is calculated on a Schedule SE.
Unreimbursed employment expenses
As noted above, the itemized deductions for employee expenses beyond the $250 have been eliminated in the tax reform, so that federal deduction is no longer available.
Despite the fact that educators (and many others) have had to work at home during the pandemic, there has been no change in eligibility for the home office deduction. The 2017 tax reform eliminated educator expenses beyond the $250 above-the-line deduction, which had been used to cover some home-office expenses. As yet, there has been no legislation providing tax relief for home use during COVID.
Rules for deducting expenses for a home office for self-employed individuals are fairly strict (as well as for equipment such as computers). The home office space must be used exclusively for work purposes, which is a tough criterion.
Deducting educational expenses
A last-minute tax revision in Congress in 2019 retroactively extended the deduction for college tuition and fees, which had expired at the end of 2017, to include the tax years 2018, 2019 and 2020. This allows you to deduct up to $4,000 above the line, so you don’t have to itemize to claim it. Barring new legislation, that deduction has now expired starting in 2021.
Extension of the tuition deduction left in place the Lifetime Learning Credit for 20% of education expenses up to $10,000, or a maximum credit of $2,000. This is a credit, so it is taken off your tax liability dollar for dollar. However, it is nonrefundable, which means you have to have some tax liability for it to count against.
The American Opportunity Credit, which can apply to the first four years of higher education, is not usually an option for educators since most have already completed a four-year degree. However, this credit can be claimed for their dependent(s). Taxpayers can choose only one of the three options for qualified education expenses.
File with confidence
Many provisions of the tax code have income caps and phase-outs and other wrinkles that may affect your actual tax liability. Be sure to work with a tax advisor or reliable tax software that clearly addresses your situation, especially if you are in the higher income brackets. And keeping receipts or a careful log is critical for the classroom supplies deduction and other tax benefits.
As an NEA member, you can earn cash back when you purchase tax prep products and services, such as TurboTax, H&R Block and more, through NEA Discount Marketplace. Look under “Office Supplies,” then click on “Tax Preparation” to find related offers.
NOTE: All of the information in this article is accurate as of January 25, 2021.