News

TaxWatch: Taxpayers won’t have to file extra paperwork to get this valuable unemployment tax break, IRS confirms

0

The Internal Revenue Service has an important message for people who already filed their 2020 taxes before a valuable tax break became law.

Don’t do anything and just wait for the refund.

Though unemployment benefits count as taxable income, one part of the $1.9 trillion American Rescue Plan waived federal income tax on the first $10,200 a person received in benefits last year, so long as they made less than $150,000. The exclusion is $20,400 for a married couple filing jointly.

The exemption only applied to 2020 jobless benefits, but the problem was, around the time President Joe Biden signed the sprawling relief package in early March approximately 66 million households had already filed their 2020 income taxes. At least some of the returns in that stack could have benefited from the break.

As the pandemic battered businesses, a peak of 23 million people were out of work in April 2020, according to the Bureau of Labor Statistics.

Stay tuned: MarketWatch is starting a money challenge on April 5 to Spring Clean Your Finances in Just 4 Weeks. Follow us on Instagram and subscribe to our newsletter for updates.

On Wednesday, the IRS confirmed that it will automatically adjust the returns of people who already filed their taxes and reported receiving jobless benefits.

The IRS will send any resulting income-tax overpayment as a refund. If a household owes federal taxes, the IRS will apply the money to the remaining tax liability.

The IRS extended the 2020 income filing deadline to May 17, back from April 15.

Payments will start going out in May to people who are due a refund based on the re-adjustment. That extra adjustment could result in tax savings between $1,000 and $2,000 depending on estimates.

“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,” the IRS notice said.

For instance, the IRS said if a person did not claim another valuable credit, like the Earned Income Tax Credit, they would have to file an amended return and claim the credit, now that the person’s readjusted income put them in the eligibility range.

The IRS advised people to review their state returns in light of the recalculation.

Weeks ago, IRS Commissioner Charles Rettig told Congress members it was likely the IRS could handle the matter by itself without an amended returns.

The timetable to send out the extra payments will stretch through the summer, the IRS said.

The recalculations will happen in two stages, the notice said. It will start with taxpayers eligible for the $10,200. It will then focus on the returns of married joint returns claiming the exclusion up to $20,400 and certain complex returns.

Want to understand the future of cryptos and NFTs? Register for MarketWatch’s free live event.

NewsWatch: What’s next after stock-market bubbles and Archegos chaos mark trading in 1st quarter ?

Previous article

Where Should I Retire?: We want to retire somewhere in North Carolina or South Carolina on $3,400 a month in Social Security — where should we go?

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in News