Question:Any update for people on unemployment who filed their income taxes before they announced the exemption?
Answer: Yes. Taxpayers who received unemployment compensation in 2020 and filed 2020 Form 1040 or 1040-SR before a federal tax break on jobless aid was approved do not need to file an amended return to correct this, the Internal Revenue Service confirmed Tuesday. “The IRS will re-figure 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 said in a website update, which you can read in full at 808ne.ws/irsui.
The U.S. American Rescue Plan excludes from income up to $10,200 of unemployment compensation paid in 2020 to people with modified adjusted gross income of less than $150,000. Joint filers may each exclude up to $10,200 from income if their modified AGI is under $150,000 and they both received unemployment compensation. There are some exceptions, such as when the spouse is a nonresident alien, according to the IRS.
You can follow worksheet instructions at the previously mentioned link to determine whether you are eligible for the exclusion, and to determine how much money the IRS should be returning.
As we reported March 14 (808ne.ws/KL314), numerous readers who had already filed their taxes by the time the American Rescue Plan was enacted March 11 wondered how best to retrieve taxes paid that were no longer due. At that time the IRS told filers to sit tight and wait for an update, which it issued Tuesday.
Q: The new stimulus bill exempts the first $10,200 of unemployment benefits received in 2020 from federal income tax for filers with modified AGI under $150,000. Does the exemption apply to state income tax, also?
A: No. Hawaii’s Senate passed a bill (SB 614, SD 2) that would have exempted 2020 pandemic-era unemployment compensation from state income taxes, but the measure appears to be dying in the House. It was referred to three committees March 12 but has not been scheduled for hearings in any of them, according to a status update at capitol.hawaii.gov.
Q: I received my third round of stimulus payment (EIP3); it was calculated using my 2019 income. However, I did not receive the full $1,400 payment for a single individual as my AGI for 2019 falls between $75,000 and $80,000. My 2020 income is less than in 2019, and I have not yet filed my 2020 tax return. Can I calculate the amount that I should have received based on 2020 income and claim the difference as a Recovery Rebate Credit on my 2020 federal income tax return (Form 1040, line 30)? If not, how will it be handled?
A: No, you can’t claim the 2020 Recovery Rebate Credit for the EIP3 issued in 2021, according to the IRS. But the IRS says it will automatically send you and others in the same boat supplemental payments if you are eligible for a higher EIP3 based on your 2020 tax return.
“If a taxpayer’s payment is less than the full amount and is based on their 2019 return, they may qualify for a supplemental payment after they file their 2020 return. The IRS will automatically re-evaluate their eligibility. If the agency determines they are entitled to a larger payment or the full payment, it will send them a supplemental payment covering the difference between what they originally received and the larger amount. If the re-evaluated amount is smaller, they won’t need to pay back the difference. Aside from filing a 2020 tax return, no action is needed on their part,” according to the IRS.
As you noted, only single filers with an AGI under $75,000 receive the full EIP3, which ceases altogether for individuals with AGI of $80,000 or more. For joint filers those figures are $150,000 and $160,000, respectively. It’s a steep cliff, to many readers’ dismay.
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