Automatic $10,200 Tax Free Unemployment – IRS Will Automatically Recalculate Your Unemployment Taxes
The IRS just announced that they will automatically recalculate taxes on the 2020 unemployment benefits and that tax refund will start to go out in May 2020.
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The IRS new article released on March 31, 2020, reads as follows:
“To help taxpayers, the Internal Revenue Service announced today that it will take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.
The legislation, signed on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxes.
Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund. The first refunds are expected to be made in May and will continue into the summer.
For those taxpayers who already have filed and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.
For those who have already filed, 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.
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.
For example, 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.
These taxpayers may want to review their state tax returns as well.
According to the Bureau of Labor Statistics, over 23 million U.S. workers nationwide filed for unemployment last year. For the first time, some self-employed workers qualified for unemployment benefits as well. The IRS is working to determine how many workers affected by the tax change already have filed their tax returns.
The new IRS guidance also includes details for those eligible taxpayers who have not yet filed.
The IRS has worked with the tax return preparation software industry to reflect these updates so people who choose to file electronically simply need to respond to the related questions when electronically preparing their tax returns. See New Exclusion of up to $10,200 of Unemployment Compensation for information and examples. For others, instructions and an updated worksheet about the exclusion were available in March and posted to IRS.gov/form1040. These instructions can assist taxpayers who have not yet filed to prepare returns correctly.”
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