TurboTax, H&R Block need time to adjust $ 10,200 unemployment tax exemption

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Online tax preparers like TurboTax and H&R Block have yet to update their software to account for a tax break on unemployment benefits some Americans received last year.

As a result, taxpayers who are eligible for the new break and normally file a digital return must wait, experts said.

About 138 million individual tax returns were filed electronically last year, nearly 98% of the total, according to IRS data as of mid-July.

$ 10,200 unemployment tax exemption

The American Rescue Plan Act of 2021, signed Thursday by President Joe Biden, exempts from federal taxes up to $ 10,200 of unemployment benefits received last year, per person.

Taxpayers are eligible for the tax cut if their modified adjusted gross income was less than $ 150,000 in 2020.

The IRS issued guidance on Friday for taxpayers filing a paper return with instructions on how to claim the tax exemption. The agency also said it would work with companies to update current tax software.

It appears that some are still adjusting their systems to account for the new rules.

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In some cases, they may not have to wait much longer: TurboTax expects to have updated its software Thursday night, according to spokeswoman Ashley McMahon.

“We are working around the clock to update TurboTax based on the recently enacted American Rescue Plan so our customers can apply with confidence and get their maximum refund,” said McMahon.

TurboTax processed nearly 40 million tax returns last year.

Lisa Patterson, a spokeswoman for H&R Block, said Tuesday that the company is awaiting additional guidance from the IRS on how the unemployment exclusion will be implemented.

The Free File Alliance, a group of nine companies that partner with the IRS to offer free electronic tax filing, did not return a request for comment. IRS Free File is available to taxpayers whose adjusted gross income is $ 72,000 or less.

Free File Alliance companies include 1040NOW Corp., ezTaxReturn.com, FileYourTaxes, Free Tax Returns, Intuit (which owns TurboTax), OnLine Taxes, TaxACT, TaxHawk, and TaxSlayer.

The IRS did not return a request for comment.

Wait to present

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The $ 1.9 trillion Covid relief bill offered the unemployment tax exemption in the middle of the tax filing season, which began on February 12 and ends on April 15.

About 40 million people received unemployment benefits last year, according to The Century Foundation. The average person received $ 14,000 in assistance.

“It’s always a challenge in the middle of tax season when there is a change in tax law,” said Nina Olson, CEO and founder of the Center for Taxpayer Rights. “It is a challenge for the IRS to incorporate it and it is a challenge for the software vendors.”

About 53.9 million tax returns have been electronically filed this year, according to IRS data as of March 5. That’s almost 97% of all returns so far.

For those who have not yet filed and want to claim unemployment tax exemption, electronic taxpayers are probably best waiting until online preparers have adjusted their systems accordingly, Olson said.

That’s especially true since the IRS has already begun depositing $ 1,400 stimulus checks into bank accounts. At this point, rushing to file a tax return so that eligibility and check amount are based on 2020 income may not happen on time, Olson said. (Taxpayers will eventually get the money owed to them.)

“I think if you give the major software companies a week, they will have it scheduled and it would be worth the wait to save you the confusion,” Olson said.

However, some smaller software vendors may not make the switch this tax season, which is a concern, he added.

After Hurricane Katrina, for example, some companies in the Free File network did not incorporate the new tax benefits offered to people affected by the natural disaster, Olson said. And those provisions were passed before tax season started, not in between like with the American Rescue Plan, he added.

Taxpayers who have already filed their taxes and are eligible for the unemployment tax exemption should not file an amended tax return, the agency said Friday. The IRS may be determining how to provide the benefit without such action, experts said.


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