Honolulu Star-Advertiser

Sunday, June 16, 2024 78° Today's Paper

Hawaii NewsKokua Line

Kokua Line: Now the IRS says some who received jobless aid may need to amend their tax returns

Question: I know the IRS will increase your refund if you paid income taxes on unemployment (808ne.ws/324kline), but when? I filed my taxes in February and already got my refund and haven’t gotten anything extra.

Answer: Not until May at the earliest. Also, in an important update, the Internal Revenue Service said Wednesday that “there is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.”

Previously, it had said simply that taxpayers who received unemployment compensation in 2020 and had filed their federal tax returns before the American Rescue Plan excluded some of that money from taxation did not need to file amended returns. The agency pledged to recalculate affected returns and issue any additional refunds due.

This is an important distinction. Some readers may wish to file an amended return to ensure they are not missing out on other tax breaks. An amended return can be filed electronically, and the taxpayer doesn’t have to wait until after the filing deadline.

Here are key points, including from the IRS update:

>> The Biden administration’s American Rescue Plan, enacted on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation of up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. This exclusion applies only to unemployment benefits paid in 2020. Taxpayers can use the form at 808ne.ws/uiex to determine whether they are eligible for the exclusion.

>> Federal tax filing season opened Feb. 12. For taxpayers who filed before the ARP took effect “and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.”

>> These recalculations will be done in two phases, with the first additional refunds to be issued in May and continuing through the summer.

>> The first phase will include taxpayers eligible for the up to $10,200 exclusion, followed by adjustments “for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns.”

>> There’s no need to file an amended return unless the unemployment compensation exclusion makes the taxpayer eligible for a federal credit or deduction not already claimed on the tax return. The IRS will adjust credits or deductions already listed, but not insert new items entirely. For example, “the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount, which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.”

>> These taxpayers should review their state tax returns as well, for similar missed benefits.

The IRS strongly encourages people who have not already filed their federal income tax returns to do so electronically. It has worked with the tax return preparation software industry to incorporate the tax implications of the American Rescue Plan “so people who choose to file electronically simply need to respond to the related questions when electronically preparing their tax returns.”

Write to Kokua Line at Honolulu Star-Advertiser, 7 Waterfront Plaza, Suite 210, 500 Ala Moana Blvd., Honolulu 96813; call 529-4773; fax 529-4750; or email kokualine@staradvertiser.com.

By participating in online discussions you acknowledge that you have agreed to the Terms of Service. An insightful discussion of ideas and viewpoints is encouraged, but comments must be civil and in good taste, with no personal attacks. If your comments are inappropriate, you may be banned from posting. Report comments if you believe they do not follow our guidelines. Having trouble with comments? Learn more here.