On March 31, the Internal Revenue Service (IRS) announced that it will automatically provide unemployment tax refunds to taxpayers who filed their returns and reported unemployment compensation before the American Rescue Plan Act (ARPA) was approved.
The ARPA, which was signed on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income (MAGI) to exclude up to $10,200 in unemployment compensation (or $20,400 if married filing jointly) from their 2020 taxes. Unfortunately, the change was implemented after some taxpayers had already filed and paid unemployment taxes.
The IRS is now taking steps to make the appropriate changes to those returns by calculating the correct taxable amount of unemployment compensation and tax. If there was an overpayment of tax, it will either be refunded or applied to any outstanding taxes due. Those who are due an unemployment tax refund should be paid sometime this summer. The first checks are expected to go out in May.
The recalculations will be done in two phases, starting with taxpayers who are eligible for the $10,200 exclusion. Those who are married filing jointly and others with more complex returns will have their taxes recalculated in the second phase.
Taxpayers, however, should not amend their returns unless they are newly eligible for additional federal tax credits and deductions not already included in their original returns. If you are unsure whether to file an amended return, we recommend speaking with a tax professional who can give you guidance on the new legislation. Call 833-803-4222 for a free consultation with Tax Defense Network today!