People who received unemployment in 2020 are facing some major tax filing changes due to the $ 1.9 trillion coronavirus relief bill.
The bill left the first $ 10,200 of unemployment benefits tax-free for households earning up to $ 150,000, regardless of marital status. Married couples filing jointly will see $ 20,400 of tax-free unemployment benefits, $ 10,200 per spouse, if both were unemployed.
The IRS said earlier this week that it will automate refunds for people who have already filed their tax returns.
The decision saves some work for those who have already filed their tax returns. They will no longer have to file an amended return to reflect tax-free benefits.
It’s also a big problem for those in New Jersey who were given the option to withhold taxes from their basic unemployment benefits, but not given the same opportunity to withhold taxes from enhanced benefits, such as weekly payments of $ 600. of the CARES Act. That could have resulted in an unexpected tax bill for many.
“If you have already filed your 2020 Form 1040 or 1040-SR, it is not necessary to file an amended return (Form 1040-X) to calculate the amount of unemployment compensation to be excluded,” the IRS said on its website. “The IRS will recalculate your taxes using the excluded unemployment compensation amount and adjust your account accordingly. The IRS will send any refund amount directly to you. “
The agency has not yet indicated how quickly that could happen.
New Jersey does not tax unemployment benefits.
Tax-free status of unemployment benefits could also increase the number of people eligible to receive stimulus checks.
The IRS clarified Tuesday that unemployment benefits will not count toward adjusted gross income, the figure used to determine if people are eligible to receive stimulus payments. That means more people will be eligible for stimulus checks.
For example, a married couple with a salary of $ 148,000 and unemployment compensation of $ 12,000 would typically have an adjusted gross income of $ 160,000, said Neil Becourtney, a certified public accountant for CohnReznick in Holmdel. They have not been eligible for a stimulus payment because there is a limit of $ 150,000 to receive the full benefit. But by excluding unemployment benefits from adjusted gross income, the couple would be eligible for two payments of $ 1,400.
“If unemployment compensation had pushed the taxpayer to the point of ineligibility for a $ 1,400 stimulus refund, this provision may therefore provide a double benefit,” he said.
The IRS extended the tax deadline for 2020 returns from April 15 to May 17. New Jersey also extended its deadline for most taxpayers, but estimated tax payments are still due on April 15.
Use our stimulus calculator to see how much you can receive.
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You can reach Karin Price Mueller at [email protected].