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2021

May 12, 2021

Your 2020 Tax Return Was Filed Too Early - Now What?

Typically when we complete our tax return early, we are filled with feelings of accomplishment and relief. This was true for tax season 2021 until the American Rescue Plan Act was revealed. While we still felt relief for a completed return, there were now questions and concerns about deductions taxpayers could have taken advantage of had they waited a bit longer to file.

Plenty of people who already filed were considering amending their returns, contacting the IRS, and disappointed there were benefits they could no longer take advantage of - until the IRS clarified.

 

Recalculating Taxes on Unemployment Benefits

The Covid-19 pandemic caused an unemployment rate of 14.8% in April 2020, the highest it has ever been since the data collection began in 1948. Since then, the unemployment rate has significantly decreased. 

While so many Americans were receiving unemployment, it did leave people wondering how it will be handled in their upcoming tax returns. It wasn’t until after many already filed that the American Rescue Plan came out.

Under the American Rescue Plan, those that received unemployment compensation can exclude parts of this income from their income for the year 2020. If a taxpayer has already filed they can expect to receive funds to correct the issue beginning in May.

The IRS is handling the calculation of tax basis and refunds due, to which they will either be fully refunded or fulfill outstanding taxes owed. 

 

Do I Need to Amend?

If you are concerned about unemployment being included in your tax return, know there is no need to amend the return. Amending is only recommended if the new calculation allows for additional deductions or credits on their original tax return. 

 

How The Calculation is Being Handled

The payments will be done in two phases. They will begin with taxpayers whose execution is up to $10,200. Then the IRS will consider married filing jointly returns up to $20,400 and more complicated returns.

If you have concerns about your tax return and how the American Rescue Plan may affect your return, we encourage you to reach out to us. While there is guidance we can generally advise on, every tax return is different. There are also considerations for those who live in different states.

 

Sources:

https://www.irs.gov/newsroom/irs-to-recalculate-taxes-on-unemployment-benefits-refunds-to-start-in-may

 

 

Disclaimer:

This publication is designed to provide information on federal tax and accounting laws and/or regulations. It is presented with the understanding that the author is not rendering legal or accounting services.

This text is not intended to address every situation that arises or provide specific, strategic tax and/or accounting planning advice. This text should not be used solely to answer tax and/or accounting questions and you should consult additional sources of information, as needed, to determine the solution to tax and/or accounting questions.

This text has been prepared with due diligence. However, the possibility of mechanical or human error does exist and the author accepts no responsibility or liability regarding this material and its use. This text is not intended or written by the practitioner to be used and cannot be used by a taxpayer or tax return preparer, for the purpose of avoiding penalties that may be imposed.

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