Second, those married filing jointly who are eligible to exclude up to $20,400, and others with more complex returns.First, taxpayers who are eligible to exclude up to $10,200.The agency will do these recalculations in two phases. Any resulting overpayment of tax will be either refunded or applied to other taxes owed. For taxpayers who already have filed and figured their 2020 tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation. This law change occurred after some people filed their 2020 taxes. Information for people who already filed their 2020 tax return All other eligible taxpayers can exclude up to $10,200 from their income. People who are married filing jointly can exclude up to $20,400 – up to $10,200 for each spouse who received unemployment compensation. This means they don't have to pay tax on some of it. Under the new law, taxpayers who earned less than $150,000 in modified adjusted gross income can exclude some unemployment compensation from their income. These refunds are expected to begin in May and continue into the summer. The IRS will automatically refund money to eligible people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan. However, a recent law change allows some recipients to not pay tax on some 2020 unemployment compensation. This article originally appeared on GOBankingRates.Normally, any unemployment compensation someone receives is taxable. Navy Federal Platinum Credit Card Review: Great for Balance Transfers and More How Long $1 Million in Savings Will Last in Every State If You Get a Stimulus Check, How Will You Use It? Take Our Poll People who file an amended return could save anywhere from $1,000 to $2,200 on their taxes, MarketWatch estimates. Make sure to consult with a tax professional before filing the amended return if you have any questions or are unclear about the process. Those amending their income to remove unemployment payments, for instance, would focus on lines 1 through 23. You’ll need to complete columns A, B and C for the lines that relate to the changes you’re making.Įnter the original amount you reported in column A, the change in column B and the corrected amount in column C. The IRS has made it possible this year to file the amended return electronically as well as by mail.įind: What Are the 2020-2021 Federal Tax Brackets and Tax Rates? When the time comes to file an amended return, taxpayers can do so online using IRS Form 1040-X. “It’s in everyone’s interest to get this sorted quickly,” he told MarketWatch. He said it also allows tax software companies to update their systems based on the tax law change. Robert Kerr, a Washington, D.C.-based IRS enrolled agent and tax consultant said waiting can give the IRS time to figure out how to handle these returns, MarketWatch reported. MarketWatch reports that 55.7 million tax returns have already been filed as of March 5, which means many Americans will need to file amended returns that could result in larger refunds or smaller tax bills.įiling an amended return is not a difficult process, but tax experts have advised people to wait a bit longer to file the amended return in case the IRS finds a way to make the adjustments automatically. See: If You Get a Stimulus Check, How Will You Use It? Take Our Pollįind: Don’t Miss These 4 Tax Breaks in the $1.9 Trillion Stimulus Plan Typically, unemployment is considered taxable income at your regular tax rate, which depends on your tax bracket based on income. Under the American Rescue Plan signed into law Thursday, the IRS will make the first $10,200 in unemployment benefits from 2020 tax-free. But the strategy may have backfired this year, as early filers who paid taxes on their federal unemployment benefits missed out on an important tax break. Tax experts often advise taxpayers to file their taxes early to expedite their refund or to be in a better position to pay their tax bill by April 15.
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