(NEXSTAR) – The IRS announced Thursday that it will be recalculating the taxes Americans paid on unemployment benefits to make sure those who filed before the American Rescue Plan was signed into law don’t miss out on a key provision in the bill.

Along with a third round of $1,400 stimulus checks, the sweeping $1.9 trillion COVID relief bill changed how taxes are levied on unemployment compensation to give people earning less than $150,000 a break on the federal unemployment dollars they received in 2020. Eligible taxpayers who are married filing jointly can exclude up to $20,400 in unemployment benefits from their taxable income, $10,200 for all other taxpayers.

The money being returned to early filers will be automatically refunded this spring and summer according to the IRS. The first refunds are expected to be in May and will continue into the summer months. The IRS will also apply any overpaid money to outstanding tax bills.

Do taxpayers need to file an amended return?

For most eligible taxpayers, the IRS will take care of everything and there is no need to file an amended return.

The IRS will start the recalculation process with the returns filed by Americans eligible for the $10,200 unemployment compensation exclusion. The second phase will include people who are married filing jointly and those with more complicated returns.

The only situation in which a taxpayer would need to file an amended return is if the IRS recalculation makes that person eligible for federal credits and deductions they wouldn’t have otherwise qualified for:

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.

The IRS recommends those taxpayers review their state returns as well.

The IRS says it has notified tax preparation software companies to make sure that eligible people are able to take advantage of the exclusions on unemployment compensation.

The Bureau of Labor Statistics found that more than 23 million U.S. workers filed for unemployment last year but it’s not yet clear how many had already filed their taxes before the American Rescue Plan became law.

See the IRS website for more information on filing your taxes and the new exclusion of unemployment compensation.

Read More

Leave a Reply

%d bloggers like this: