New $10,200 Unemployment Tax Break Information & How to Get Your Refund.
The American Rescue Plan Act of 2021, which Joe Biden signed Thursday, waives federal tax on up to $10,200 of unemployment benefits for single adults who earned less than $150,000 a year in 2020. (The ceiling is $20,400 for two workers in a married couple.)
Jobless Americans should WAIT to file an amended tax return to get a new tax break on unemployment benefits received last year, the IRS said Friday.
This new policy makes it so people who were unemployed entitled to a bigger tax refund, however this policy was enacted after tens of millions of Americans already filed, so this will cause considerable disruptions in the normal tax season.
How do we navigate another sudden and drastic change by the new administration? We break it all down below...
Key Points
Joe Biden signed the American Rescue Plan Act of 2021 on Thursday. The $1.9 trillion Covid relief bill gives a federal tax break on up to $10,200 of unemployment benefits.
The IRS told Americans to wait to file an amended tax return if they received unemployment benefits in 2020 and already filed their taxes this year.
The IRS also issued instructions Friday on how unemployed workers should claim the tax break.
Amounts over $10,200 are still taxable. States may also decide not offer the tax break.
What Does This Mean for Me?
Those who filed a tax return before the $1.9 trillion Covid relief measure became law should wait to file an amended return until the IRS issues additional information, the agency said.
“For those who received unemployment benefits last year and have already filed their 2020 tax return, the IRS emphasizes they should not file an amended return at this time, until the IRS issues additional guidance,” the IRS said Friday.
The IRS received nearly 56 million returns and processed nearly 49 million as of March 5, according to the agency.
About 40 million people received unemployment benefits last year, according to the Century Foundation. The average person got $14,000 in assistance.
A holding pattern may put some workers in a tough spot, especially those who paid a big tax bill on their unemployment benefits and must now figure out how to recoup the funds, said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
New Tax Instructions
The IRS on Friday also issued tax-filing instructions for those who hadn’t yet filed a return.
“For those who haven’t filed yet, the IRS will provide a worksheet for paper filers and work with software industry to update current tax software so that taxpayers can determine how to report their unemployment income on their 2020 tax return,” the IRS said.
The 2020 tax-filing deadline is a month away, on April 15. We will keep everyone updated as this story develops. If you have questions you can Contact Us for more information.
