Perhaps you are among the roughly 40 million Americans who received unemployment benefits during the COVID-19 pandemic last year. If you filed your 2020 tax return, once the Internal Revenue Service accepted it on February 12, you paid the statutory tax on your unemployment benefits and found that it was the end.
But a month later you learned that the rules had changed. Under the new US $ 1.9 trillion bailout bill of 2021, signed by President Biden in early March, $ 10,200 unemployment benefits were suddenly exempt from tax by 2020 for households whose incomes were less than $ 150,000 .
This is just one of the ways the pandemic has complicated this year's tax season, said Clint Carney'08, Chartered Accountant and Adjunct accounting Professor in the Manning School of Business.
"Everything is fluid – that's how it usually is with taxes – but it just seems like the impact on Americans is much greater during COVID," said Carney, chief financial officer at Semcasting, a data analytics and marketing company based in North Andover. Massachusetts. Since 2014 he has been teaching accounting courses at the Manning School.
In recognition of these complications, the IRS recently extended the filing deadline by a month to May 17 – a move Carney calls "short-term band-aid" as the IRS struggles to adapt to changing tax laws while doing federal business stimulus checks to send to millions of Americans. Massachusetts has followed suit, extending the state tax filing deadline to May 17th.
"Nobody feels sorry for the IRS, but they certainly have a hard time processing taxes this year."
Accounting Adjunct Prof. Clint Carney
"How much more can the IRS or the states get in 30 days?" It will probably take a while before everything is back to normal, ”he says. "Nobody feels sorry for the IRS, but they certainly have a hard time processing taxes this year."
Regarding the change in unemployment benefit, the IRS has stated that those who filed their taxes earlier this year should not change their tax returns. The IRS will automatically adjust them for the unemployment benefit exclusion. But 35 states, including Massachusetts, also tax unemployment benefits, and Carney says it's unclear whether they'll do the federal exclusion.
Another source of confusion this year, Carney says, is federal stimulus payments.
“A lot of people wonder if you claim this when you return. The answer is 'no'. For you, it's not taxable income. It's essentially a free government payment,” says Carney, who adds that Stimulus money also has no effect on your tax bracket. "It has no tax effect on you."
While millions of people were forced to work from home during the pandemic, Carney notes that if you are not self-employed, you cannot write off home office expenses.
Employees who live in one state and work in another – like the 84,000 New Hampshire residents who commute to work in Massachusetts – usually pay income tax in their state of employment. But the work-from-home scenario has complicated things about it, says Carney. Massachusetts, for example, has said it can still withhold income taxes for employees who work from home in New Hampshire. Granite State legislators disagree and have their case before the Supreme Court.
"Now they're bumping into the heads in court to find out. It's just a disaster," says Carney.
Identity theft and fraud are a problem every tax season. Carney says the problem will be exacerbated this year by widespread unemployment fraud, which cost Americans an estimated $ 36 billion last year.
"I'm scared to think about how many taxpayers will get a notice from the IRS once they get their tax returns that say 'Hey, you didn't account for your unemployment', even if they were employed," he says. "That'll open a whole can of worms."
Carney's advice when you get a letter like this from the IRS?
“First make sure it's valid. The IRS basically just sends letters – they never call and they definitely don't send email,” he says. “And don't panic if you get a letter from the IRS. Just keep answering. Be at the forefront. Send them letters and keep track of those letters so you can prove they were sent and received by the IRS. Make sure you document any communications you have with them. "
Carney, who has been so much in flux this year, feels empathetic with those who are ignorant of tax law or do not have the resources to pay an expert.
The good news for the average taxpayer is that time is still on its side.
"You have an additional 30 days and who knows if that will change?" he says. "And as long as you don't think you owe taxes, you can file an extension and get even more time."