WAYNE, NJ – The American Rescue Plan was signed into law on March 11. Some funding in this law provided us with our $1,400 economic stimulus payments. It also earmarks billions of dollars for rent and mortgage support, recovery money for states and tribal governments. This law will also be the reason why some people may get a second tax refund from the Federal Government.
The law allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 for married couples filing jointly or $10,400 for individuals. This applies only to unemployment compensation for the year 2020.
The good news is that the Internal Revenue Service will go through any 2020 tax returns that were filed previous to this law, update the returns and refund any monies owed automatically, according to a press release from the IRS
“Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund,” reads the statement.
These refunds are expected to be made in May and will continue into the summer.
For those who have already filed their return and included unemployment compensation as revenue, “the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.”
“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 press release stated.
The IRS advises that, where this applies federally, taxpayers may also want to review their state tax returns.
According to the Bureau of Labor Statistics, over 23 million U.S. workers nationwide filed for unemployment last year. For the first time, some self-employed workers qualified for unemployed benefits as well. The IRS is working to determine how many workers affected by the tax change already have filed their tax returns.
The new IRS guidance also includes details for those eligible taxpayers who have not yet filed.
This link provides more information from the IRS: New Exclusion of up to $10,200 of Unemployment Compensation