IRS will recalculate unemployment profit taxes in 2020 and situation refunds from Could

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Usually, any unemployment benefit someone receives is taxable. However, a recent change in the law allows some beneficiaries to avoid paying taxes on 2020 unemployment benefits.

The IRS will automatically refund eligible individuals who filed their tax returns to report unemployment benefits ahead of the recent changes to the American Rescue Plan. These refunds are expected to begin in May and continue into the summer.

Under the new law, taxpayers who earned less than $ 150,000 in modified adjusted gross income can exclude a portion of unemployment benefit from their income. This means that you don't have to pay taxes for some of them. Individuals who are married and filing together can exclude up to $ 20,400 – up to $ 10,200 for each spouse who has received unemployment benefits. All other eligible taxpayers can exclude up to $ 10,200 from their income.

Information for people who have already filed their tax return for 2020

This change in law came after some individuals filed their 2020 taxes. For taxpayers who have already filed and calculated their 2020 tax based on the full amount of Unemployment Benefit, the IRS will determine the correct taxable amount of Unemployment Benefit. Any resulting overpayment of tax will either be refunded or applied to other taxes owed.

The agency will carry out these recalculations in two phases.

  • First, taxpayers who are eligible to foreclose up to $ 10,200.
  • Second, those who are married and can collectively exclude up to $ 20,400 and others with more complex returns.

Taxpayers only need to file an amended tax return if the recalculations have given them the right to receive additional federal tax credits or deductions that were not already included in their original tax return.

For example, the IRS can adjust the tax returns for taxpayers who applied for the earned income tax credit, and now that the exclusion has changed their income levels, they can claim an increase in the EITC amount.

However, taxpayers would have to file an amended tax return if they had not originally applied for the EITC or other credits, but were now entitled to claim them after the change in tax law. Taxpayers can use the EITC Assistant to see if they qualify for this credit based on their new taxable income amount. If they qualify now, they should consider filing an amended statement to receive this money.

These taxpayers may also want to review their state tax returns.

Information for people who have not submitted their 2020 tax return

The tax preparation software has been updated to reflect these changes. Individuals who have not yet submitted and choose to file electronically simply need to answer the relevant questions when preparing their tax returns. These taxpayers should read the new exclusion of up to $ 10,200 in Unemployment Benefit for information and examples. Instructions and an updated exclusion worksheet are available on IRS.gov for those interested in filing a paper return.