01 Apr IRS Recalculating Taxes on Unemployment Benefits
As part of the American Action Plan, legislation signed on March 11, 2021, taxpayers who earned less than $150,000 in modified adjusted gross income (AGI) can exclude unemployment compensation up to $10,200 ($20,400 if married filing jointly for each spouse who received unemployment compensation).
So What?
Well, since many people had already filed taxes for this season, you don’t have to amend your return, the IRS will! Starting in May 2021, the IRS will recalculate your taxable income, removing the now exempt unemployment income, and adjust the taxes owed. This may result in a refund for many taxpayers, or the amount will be applied to outstanding taxes owed.
There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.
Really?!
Yes! For instance, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.
When?
The IRS will do these recalculations in two phases, starting with those taxpayers eligible for the up to $10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns.
Can you help?
We sure can, and we’ve done it for a lot of clients. Call today, there is still plenty of time to get on our calendars for your 2020 taxes!
