A new change to a tax law will give taxpayers who received unemployment benefits in 2020 a bit of a tax break. In most years, unemployment compensation is subject to federal taxes. Because unemployment benefits are considered income, taxpayers have to pay taxes on them. Under the new law, some unemployment benefits recipients will not have to pay taxes on some of their 2020 compensation.
Under the new law which was part of the recently passed American Rescue Plan, recipients who earned less than $150,000 in modified adjusted gross income can exclude a portion of their unemployment compensation from their income. For couples who file married filing jointly, they can exclude up to $20,400 which would be up to $10,200 for each spouse who received unemployment. All other eligible taxpayers can exclude up to $10,200 from their income.
The IRS will automatically refund money to eligible taxpayers who have already filed their 2020 federal tax returns. The refunds are expected to begin this month and will continue into the summer. The law change occurred after some people had already filed their tax returns, which is why the IRS will determine the correct amount of taxable unemployment compensation. If you ended up overpaying your taxes, you will either be refunded the overpayment amount or that amount will be applied to other taxes owed.
You only need to file an amended return if the recalculations make you newly eligible for additional federal tax credits or deductions not already included in your filed tax return, such as the Earned Income Tax Credit.
Additional Readings
Many people find starting a small business of their own as easy as a piece of cake. However, most of the time, what they fail to prioritize are some of the major players involved in smoothly operating their small business. A tax attorney is one core character that people often overlook. Business taxation can be...
The Employee Retention Tax Credit (ERC or ERTC) is a tax credit that the United States government introduced as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The ERC was meant to help businesses across the country that were feeling the negative impacts of the COVID-19 pandemic. Eligible companies are still able...
With the COVID-19 pandemic shutdown, taxpayers across the country saw fraudulent claims for unemployment under their name. Criminals were using stolen identities and personal information to file for unemployment benefits. Unemployment benefits are taxable income and so having a claim for unemployment benefits can complicate your taxes.
A new change to a tax law will give taxpayers who received unemployment benefits in 2020 a bit of a tax break. In most years, unemployment compensation is subject to federal taxes. Because unemployment benefits are considered income, taxpayers have to pay taxes on them. Under the new law, some unemployment benefits recipients will not...
A recent article from the Washington Post cites data from 2019, where 1.3% of taxpayers earning one million to five million dollars were audited. Further, only 0.2% of those earning $25,000 to $50,000 were audited. You must understand this is not a personal attack when you receive an audit letter. The IRS has a computer...
