Updated: Feb 1
Are you one of those folks who likes to get your Income Tax Returns filed early and out of the way? Well if you are, and you reported unemployment compensation as taxable income, then Congress decided to make a 2020 retroactive tax law change in March 2021, making the first $10,200 of unemployment compensation tax free… help is on the way.
IRS just released its plans to automatically refund any overpaid tax on your 2020 return without requiring you to file an amended return. Now isn’t that just precious? (A little southern lingo that implies a bit of sarcasm.)
So what do you do if you filed early and reported taxable unemployment compensation (and ultimately paid tax on it)? NOTHING. The IRS has your back. (Does that make you feel good to know that?) The IRS claims that they will start issuing automatic refunds on the now obviously overpaid tax in May.
While I’m on this subject, just a recap. In March of 2021, Congress in their usual late and disorganized manner, passed a law that retroactively changed the tax law for 2020. Right in the middle of the 2020 filing season. The IRS was swamped with received tax returns, etc. and had to suddenly stop, reprogram their software, work with third party software companies (like Turbo Tax, etc.) to update their software, and at the same time, issue new Economic Stimulus checks to everybody in the country. All with only 60% of their workforce. (The rest have yet to come back to work due to the VID.) For once, even I felt sorry for the IRS.
Basically, for households with $150,000 or less of adjusted Gross Income, the first $10,200 of unemployment compensation received in 2020 is NOT taxable. IRS has since clarified that for married couples, that limit is the same ($150,000), but now up to $20,400 of unemployment benefits are NOT taxable. (Hooray. At least they tried to do the right thing and found a way to partially unravel the marriage penalty mess that Congress originally put into the law.)
So now, if you haven’t filed your tax return yet, you have until May 17th to do so. You should properly reduce your taxable income by the non-taxable portion of unemployment that you received.
Have you heard? Psalm 60:11 says, “Give us help against the adversary, for the help of man is vain.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.