![]() Otherwise, the IRS said it will recalculate returns of taxpayers by incorporating the $10,200 exclusion and either refund them or apply it to other taxes they owe. That means some taxpayers may have to file an amended return to get their maximum refund if the unemployment tax break now makes them eligible for additional tax credits that were not claimed on their original return, or if they mistakenly excluded their unemployment income in states that choose to still tax the jobless aid. Some states may still opt to tax jobless aid, tax experts say. Here's what you need to know: Why must some amend their returns?īeginning in May and continuing into the summer, the IRS will automatically refund taxpayers who filed their returns without claiming the new tax break on unemployment benefits, it said, but this was in regards to their federal return. The legislation excludes only 2020 unemployment benefits from taxes. The legislation allows taxpayers who earned less than $150,000 in adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly or $10,200 for all other eligible taxpayers. Until now, jobless insurance had to be reported as taxable income and many would likely owe federal income taxes on those benefits. IRS tax deadline: Retirement and health contributions extended to May 17, but estimated payments still due April 15 When will 'plus-up' payments arrive?: Catch-up COVID payments sent to 700,000 Americans in latest batch The latest $1.9 trillion stimulus package created a new tax break for tens of millions of workers who received unemployment benefits last year after businesses were forced to close and lay them off during the coronavirus pandemic. This applies to taxpayers who filed their federal and state tax returns before the American Rescue Plan became law in March. Taxpayers won’t have to file an amended federal return unless the unemployment tax break now makes them eligible for tax benefits like the Earned Income Tax Credit, a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. Make sure to consult with a tax professional before filing the amended return if you have any questions or are unclear about the process.Some Americans who received a federal tax break on their unemployment insurance last year may have to file an amended return to get their full refund. Those amending their income to remove unemployment payments, for instance, would focus on lines 1 through 23. ![]() You’ll need to complete columns A, B and C for the lines that relate to the changes you’re making.Įnter the original amount you reported in column A, the change in column B and the corrected amount in column C. ![]() The IRS has made it possible this year to file the amended return electronically as well as by mail.įind: What Are the 2020-2021 Federal Tax Brackets and Tax Rates? When the time comes to file an amended return, taxpayers can do so online using IRS Form 1040-X. “It’s in everyone’s interest to get this sorted quickly,” he told MarketWatch. He said it also allows tax software companies to update their systems based on the tax law change. ![]() Robert Kerr, a Washington, D.C.-based IRS enrolled agent and tax consultant said waiting can give the IRS time to figure out how to handle these returns, MarketWatch reported. MarketWatch reports that 55.7 million tax returns have already been filed as of March 5, which means many Americans will need to file amended returns that could result in larger refunds or smaller tax bills.įiling an amended return is not a difficult process, but tax experts have advised people to wait a bit longer to file the amended return in case the IRS finds a way to make the adjustments automatically. See: If You Get a Stimulus Check, How Will You Use It? Take Our Pollįind: Don’t Miss These 4 Tax Breaks in the $1.9 Trillion Stimulus Plan Typically, unemployment is considered taxable income at your regular tax rate, which depends on your tax bracket based on income. Under the American Rescue Plan signed into law Thursday, the IRS will make the first $10,200 in unemployment benefits from 2020 tax-free. But the strategy may have backfired this year, as early filers who paid taxes on their federal unemployment benefits missed out on an important tax break. Tax experts often advise taxpayers to file their taxes early to expedite their refund or to be in a better position to pay their tax bill by April 15.
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