Did You File Before Congress Passed the Unemployment Tax Exclusion? Here is How the IRS is Handling the Situation

Article Highlights:

American Rescue Plan Act
Unemployment Income Exclusion
Early Filers
IRS Automatic Adjustment
Refund Schedule
Method of Payment
Refund Offsets
Potential Need for Amended Return
Adjustment Notice

Normally, unemployment insurance benefits are fully taxable for federal purposes. However, earlier this year, about the middle of the tax filing season, Congress, as part of the American Rescue Plan Act, decided that each individual who received unemployment benefits could exclude the first $10,200 of those benefits from taxation if their modified AGI was less than $150,000.

This created a problem, since the exclusion was announced after millions of taxpayers had already filed their tax returns. The IRS, not wanting to deal with amended returns from all those early filers, announced they would automatically make the adjustment and send out the appropriate refunds, The IRS also cautioned taxpayers not to file amended returns since the Service would be making the adjustment.

If you are a 2020 unemployment benefits recipient who filed early and have been waiting for a refund, the IRS has announced it will begin issuing refunds on May 15, 2021. The IRS plans to adjust the simplest returns first, which are those filed by unmarried taxpayers, followed by the returns of married taxpayers. The IRS estimates it will take through the end of summer to review and correct all of the returns.

The IRS will issue refunds by direct deposit where a taxpayer included bank account information on their 2020 tax return; otherwise, the refund will be by a check mailed to the taxpayer’s address of record.

The IRS will send taxpayers a notice explaining the corrections, which they should expect within thirty days of when the correction is made. You are strongly urged to retain the notice and forward it to this office, since the IRS concedes they may not pick up all the adjustments made possible by the reduced income as discussed below.

Refunds will be subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts.

The IRS has indicated the adjustments they will make include the Earned Income Tax Credit (EITC) for taxpayers without qualifying children and the Recovery Rebate Credit. However, some taxpayers may be eligible for certain income-based tax credits not claimed on their original return, such as the EITC for their qualifying children, increased Premium Tax Credit, and other limitations based upon income. An amended tax return can be filed after the IRS revisions are made if the taxpayer(s) become eligible for additional benefits.

The American Rescue Plan Act also suspended the requirement to repay excess advance payments of the Premium Tax Credit (excess APTC) that is available to those who purchase their health insurance from a government marketplace. If a taxpayer paid an excess APTC repayment amount when they filed their 2020 return, the IRS will also refund that amount automatically. If the IRS corrects the taxpayer’s account to reflect the unemployment income exclusion, and the taxpayer’s original return included an excess APTC amount that the taxpayer paid, the IRS will include that adjustment as well.

Please remember to forward a copy of the IRS Notice explaining the changes they made to this office for review to ensure there are no other changes that can result in an additional refund for you, and as always, please call if you have questions.

Share this article...

Facebook

Twitter WhatsApp LinkedIn Pinterest Reddit Email

Want tax & business tips and insights?

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Social Media

Location

205 Main St.
Hackettstown, NJ 07840

(908) 441-2804 Se Habla Español

info@jerichotaxllc.com

Disclaimer:

The information presented in our website is intended for general use to inform our clients, colleagues and friends about our firm and the services we offer. We have made every effort to provide accurate information, however it is important to recognize that individual and business circumstances are never alike. It is not intended nor should it be used as a substitute for tax, audit, investment, consulting, legal or other professional advice. You should seek advice directly from a Jericho Tax Service professional before making any decision or taking any action on tax, financial and consulting related matters and issues.

The information provided at this site is subject to change without notice. All information in this site is provided 'as is.' In addition, this website may contain hyperlinks to websites and servers maintained by third parties. We do not control, evaluate, endorse or guarantee content found in third party sites. We do not assume any responsibility or liability for the actions, products, services and content of these sites or the parties that operate them. Your use of such sites is entirely at your own risk.

Jericho Tax Service We love to chat!

Please feel free to use our Ai chat assistant or use the button to contact us.

Please fill out the form and our team will get back to you shortly The form was sent successfully

First Name *

Last Name *

Email *

Mobile Number

Message *