$ 10,200 tax break for unemployment
The American Rescue Plan waived federal tax on up to $ 10,200 in unemployment benefits, per person, received by 2020.
However, President Joe Biden signed the $ 1.9 trillion Covid exemption measure on March 11, about a month after the start of the tax season.
The tax break allows some households to qualify for tax breaks that they were not eligible for based on their income when they originally filed their tax return.
That’s because the tax break technically excludes benefits from a taxpayer’s income, reducing the income on which they pay tax.
That income reduction can make them eligible for means-tested tax benefits, such as the Earned Income Tax Credit, according to the IRS.
“It’s not a judgment,” said Henry Grzes, chief manager of the tax practice and ethics team at the American Institute of Certified Public Accountants. “It’s pure math.”
Amended tax return
Filing an amended tax return isn’t a requirement, but people can leave money on the table if they don’t, Grzes said.
Taxpayers do not have to submit an amended tax return immediately. They will generally have up to three years from this year’s tax term (May 17) to do this, Grzes said.
It’s unclear how many taxpayers may need to file an amended tax return to maximize their refund. The IRS did not respond to a request for comment.
The agency will automatically begin issuing refunds from May and will continue into the summer, the IRS said Wednesday.
According to the Century Foundation, about 40 million people will receive unemployment benefits by 2020. The average person received $ 14,000.
The unemployment tax cut is not available to taxpayers with adjusted adjusted gross income of $ 150,000 or more. That income ceiling is the same regardless of claim status (such as single or married), but the calculation excludes unemployment benefits.
Earned income tax relief
Aside from the earned income credit, there aren’t many tax breaks that unemployed people are likely to be newly eligible for, Grzes said. For example, they may also qualify for the child and dependent care deduction, he said.
The employed person’s 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 and amount vary based on the number of children.
The maximum credit is $ 538 for taxpayers without children. That maximum is $ 6,660 for taxpayers with three or more eligible children.
Some filers without children can claim the tax credit if their adjusted gross income is less than $ 15,820. A filer with three kids can earn up to $ 50,594 and be eligible.
Married joint filers without children are eligible with an income of up to $ 21,710; that rises to $ 56,844 for joint filers with three children.
The IRS can automatically adjust the returns for those taxpayers who initially claimed the earned income credit and may now qualify for an increase in the amount of credit (and a potentially larger refund). In other words, no amended tax return would be needed in this case.