How does this tax break work?
On Friday, the tax agency clarified that whatever taxpayers spent on personal protective equipment to help prevent the spread of COVID — including masks, hand sanitizer or sanitizing wipes — qualifies as deductible medical care expenses on tax returns.
So, the money you or other members of your household paid for those materials in 2020 may be claimed when you submit your taxes this year, provided that none of the costs were reimbursed by an insurance company.
But in order to get the write-off, you'll need to itemize deductions, and your medical expenses for the year must exceed 7.5% of your adjusted gross income. That's your taxable income before itemized deductions have been subtracted.
It's estimated that fewer than 10% of taxpayers will itemize deductions on their 2020 returns. The 2017 tax law signed by President Donald Trump bulked up the standard deduction and made it much more difficult to itemize.
But if that's something you're still able to do, medical expenses — including what you spent to protect against COVID — might help you get a larger tax refund. Note that you may have to wait a while for that money, because the IRS is struggling with a massive backlog of returns.
What if you need your refund money ASAP?
If you’re pressed for cash and can't wait for the tax agency to come through with you refund, here are a few options if you need more money right now.
Cut the cost of your debt. Credit cards are convenient, but interest is a killer. If you’ve been relying on plastic to get you through the pandemic, you might make your debt easier to shoulder — and unload sooner — by folding your credit card balances into a single debt consolidation loan at lower interest.
Slash your insurance bills. Car insurance companies have been handing out discounts to drivers who are out on the road less amid the pandemic. Not yours? Sounds like it’s time to shop around for a better deal. And while you’re looking, why not also save hundreds on homeowners insurance by comparing rates to find a lower price?
Reduce your mortgage payments by refinancing. If you haven’t looked around for a lower interest rate on your home loan in the last year, you're overdue. Rates are still historically low and refinancing your existing mortgage could reap big savings. An estimated 11.1 million U.S. homeowners could reduce their monthly house payments by an average $277 through a refi, according to mortgage tech and data provider Black Knight.
Trim your budget and “make your own” tax refund By finding a few creative ways to cut back, you could rearrange your budget to find a few hundred dollars. Instead of ordering in for date night, enjoy a refreshing cocktail and make dinner together. Have a hobby or special talent? Turn it into a side hustle to bring in extra income. And, download a free browser extension that will automatically scour for better prices and coupons whenever you shop online.
Kiss Your Credit Card Debt Goodbye
Millions of Americans are struggling to crawl out of debt in the face of record-high interest rates. A personal loan offers lower interest rates and fixed payments, making it a smart choice to consolidate high-interest credit card debt. It helps save money, simplifies payments, and accelerates debt payoff. Credible is a free online service that shows you the best lending options to pay off your credit card debt fast — and save a ton in interest.