April 7, 2021
The Internal Revenue Service will automatically issue tax refunds next month to Americans who already filed their returns but are eligible to take advantage of a new break on unemployment benefits.
But some taxpayers may still have to file an amended return in order to receive their maximum refund, the agency said.
That’s because certain individuals are newly eligible for other federal tax credits and deductions that they may not have claimed on their initial refund, the result of the $10,200 unemployment tax break included in President Biden’s coronavirus relief bill.
“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 IRS said.
Under the legislation, known as the American Rescue Plan, households do not have to pay federal income taxes on up to $10,200 in 2020 unemployment insurance benefits if they earned less than $150,000 a year.
Workers can exclude the aid when calculating their modified adjusted gross income — meaning that an individual who earned $140,000 last year but collected $10,200 in jobless aid is still eligible to take advantage of the tax break. The break applies to this tax-filing season, which began Feb. 12 and ends May 17.
Since the tax break excludes the jobless benefits from a taxpayer’s income, more people may be qualified to apply for income-dependent tax breaks such as the Earned Income Tax Credit, which provides support to low- and moderate-income working parents. Workers can receive a credit equal to a certain percentage of their earnings (it varies by family size). In 2020, the maximum credit for families with one child is $3,584, while the maximum credit for families with three or more children is $6,660.
“Taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income,” the agency said. “These taxpayers may want to review their state tax returns as well.”
It’s unclear how many taxpayers may have to file an amended tax return in order to get a bigger refund.
The IRS said that it will automatically issue tax refunds to Americans who qualified for the unemployment break starting in May.
The agency said it will do the recalculation in two phases, beginning with taxpayers who are eligible for the $10,200 exclusion. It will then proceed to calculate the new refund for married couples who are eligible for the $20,400 exclusion and other more complex returns.
Because tax laws change year to year, and there are tax regulations that apply specifically to your industry, it’s important to find a tax accountant with expertise in your market. Contact our office at 954-942-1120 to speak with one of our team members. We will be happy to help you. At Louis Mamo & Company we have been providing solutions for businesses and individuals since 1982.
(Sources: U.S. Treasury, the Internal Revenue Service and Fox Business News)