Some Unemployed Workers May Need Amended Tax Return, Says IRS

$ 10,200 unemployment tax exemption

The American Rescue Plan exempted from federal taxes up to $ 10,200 of unemployment benefits, per person, received in 2020.

However, President Joe Biden signed the $ 1.9 trillion Covid relief measure on March 11, about a month after tax season.

The tax exemption may make some households eligible for tax exemptions that they did not qualify for based on their income when they originally filed their taxes.

This is because the tax exemption technically excludes benefits from a taxpayer’s income, thus reducing the income on which they pay taxes.

That reduction in income may make them eligible for income-dependent tax breaks, such as the Earned Income Tax Credit, according to the IRS.

“It’s not a judgment call,” said Henry Grzes, senior manager of the tax practice and ethics team at the American Institute of Certified Public Accountants. “It is a pure exercise in arithmetic.”

Corrected Tax Refund

Filing an amended return is not a requirement, but people may be leaving money on the table if they don’t, Grzes said.

Taxpayers do not have to file an amended return right away. They will typically have up to three years from this year’s tax deadline (May 17) to do so, Grzes said.

It’s unclear how many taxpayers will have to file an amended tax return to maximize their refund. The IRS did not respond to a request for comment.

The agency will begin issuing refunds automatically starting in May and will continue through the summer, the IRS said Wednesday.

About 40 million people collected unemployment benefits in 2020, according to the Century Foundation. The average person received $ 14,000.

The unemployment tax cut is not available for taxpayers whose modified adjusted gross income is $ 150,000 or more. That income limit is the same regardless of filing status (such as single or married), but the calculation excludes unemployment benefits.

Earned income tax credit

Aside from the earned income credit, there aren’t many tax breaks that unemployed people are likely to be eligible for recently, Grzes said. They may also qualify for the child and dependent care credit, for example, he said.

The earned income tax credit is a refundable tax credit available to taxpayers who received certain types of income in 2020, such as wages and self-employment income. Income eligibility and amount vary based on number of children.

The maximum credit is $ 538 for taxpayers without children. That maximum is $ 6,660 for taxpayers with three or more qualifying children.

Single taxpayers without children can claim the earned income tax credit if their adjusted gross income is less than $ 15,820. A taxpayer with three children can earn up to $ 50,594 and be eligible.

Married joint taxpayers without children are eligible with up to $ 21,710 of income; That rises to $ 56,844 for joint taxpayers with three children.

The IRS can automatically adjust the returns of those taxpayers who initially claimed the earned income credit and may now be eligible for an increase in the amount of the credit (and a potentially larger refund). In other words, no modified tax return would be necessary in this case.


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