- August 16, 2021
- Posted by: blogtester
- Category: Uncategorized
The American Rescue Plan provided new tax relief to millions of Americans who received unemployment benefits last year. Here is everything you need to know about unemployment compensation.
Most of us are unaware that Unemployment Compensation is taxable. The American Rescue Plan Act of 2021, on the other hand, enables people to deduct up to $10,200 in unemployment compensation for the 2020 taxable year. This exemption is up to $10,200 per partner for married couples filing a combined Form 1040-SR or 1040.
Your adjusted gross income (AGI) has to be less than $150,000 for qualifying for this exemption. This limit is the same for all filing statuses. Also, it does not increase to $300,000 if you are married and file a joint return. If you have unemployment benefits exceeding $10,200 ($10,200 per partner if married filing jointly), you should report it as taxable income on the tax return.
Have You Already Filed A Tax Return?
In most situations, you may have previously filed a tax return that contains the whole sum of your unemployment compensation. In such cases, the IRS will promptly calculate the exact taxable amount and tax. However, if you have paid more than the right tax amount, the IRS will refund the difference. Sometimes, they apply it to other unpaid taxes. The first reimbursements will be issued in May, and they will continue throughout the summer.
There’s no need to contact the Internal Revenue Service or file a Form 1040-X, Amended U.S. Individual Income Tax Return. You can obtain further information on IRS to recalculate taxes on unemployment benefits; refunds to start in May.
If you receive credits or deductions not submitted on your initial return due to the omitted unemployment compensation, you should file an updated return. For instance, if you have not claimed the Earned Income Tax Credit (EITC) on your initial return since your AGI was much too high, but the exemption for unemployment compensation has now reduced your AGI, you should file an updated return to claim the credit if you are now qualified.
Are You Preparing Your Tax Return Now?
If you are filing your tax return, you must examine if your AGI is less than $150,000 to see if you are qualified for the exclusion. The simplest approach to compute the right amount is to file electronically. The IRS has coordinated with the tax return preparation software development to incorporate these changes so that taxpayers who opt to file electronically only have to answer the appropriate questions when completing their forms electronically. For further information and examples, see the New Exclusion of up to $10,200 of Unemployment Compensation. For others, guidelines and a revised worksheet on the exclusion were issued on IRS.gov/form1040 in March.
If you wish to seek any more information and instances, check Unemployment Compensation Exclusion FAQs.
Who is Eligible?
The tax relief is not available to everyone. Only those with an annual income of less than $150,000 in 2020 are eligible.
This income level acts as a cliff: anyone earning $150,000 or more in the previous year is not eligible for the tax reduction.
The $150,000 limit applies to all taxpayers, regardless of whether they are single or married.
When calculating income eligibility for the tax reduction, taxpayers must utilize their total unemployment benefits received.
Let’s assume a couple’s total employment income was $140,000 last year. In addition, each spouse received $6,000 in unemployment payments. Their total income would be $152,000, which would make them ineligible for the tax reduction.
Have you been a victim of unemployment fraud?
Criminals using stolen identities submitted unemployment benefit claims in the names of others. Unemployment compensation refers to taxable income. So, state unemployment agencies file Forms 1099-G with the IRS and pay to the people whose identities and Social Security numbers were used. Fraud victims who obtain Forms 1099-G with incorrect unemployment compensation sums in Box 1 should inform the state agency and seek revised Forms 1099-G. The Department of Labor has instructions on how to report fraud and protect yourself.
If you are still unsure how the unemployment compensation works and are unable to file, Platinum Tax Defenders can assist you with the entire process. Contact the team today before it is too late.