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AMERICAN RESCUE PLAN

How many people are getting an unemployment tax break refund?

The IRS announced on Friday that over 10 million had filed a tax return before the American Rescue Plan was enacted providing unemployment tax break.

Update:
The IRS announced on Friday that over 10 million had filed a tax return before the American Rescue Plan was enacted providing unemployment tax break.

Millions of Americans received unemployment benefits in 2020 and a fair number of them filed a tax return prior to the passing of the American Rescue Plan which provided unexpected tax relief on those benefits.

The American Rescue Plan passed in March had a last-minute addition in some horse trading. Although those still receiving unemployment benefits wouldn’t get the extra $400 per week on top of other jobless assistance until September, it was dropped to $300, they got a waiver on up to $10,200 per person claimed while receiving unemployment compensation in 2020.

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How many people are getting unemployment tax break refund?

Around 40 million people received unemployment benefits in 2020 which are taxed by the federal government and some states, which may have come as a surprise to many who had never received out of work compensation. Of those who had claimed jobless aid the IRS said over 10 million had filed a return prior to President Joe Biden signing the American Rescue Plan on 11 March.

The IRS advises taxpayers that had already filed not to amend their tax returns to claim the waiver except in certain cases. To ease the burden on taxpayers the tax agency would automatically make the necessary corrections to determine if there was no change, a reduced balance due or the filer had a refund coming to them.

Unfortunately, if a taxpayer was expecting a refund that meant their refund would be delayed while the IRS made the recalculations. The agency is doing this in a phased approach, starting with individual tax returns in the first phase and once finish with those will move on to those returns from married couples filing jointly and more complex returns. The IRS announced that the first phase has begun and refunds will start going out this week.

Who is eligible for the $10,200 unemployment tax waiver?

Individuals and married couples filing jointly who have a modified adjusted gross income (AGI) of less than $150,0000 can claim the waiver. The tax waiver is only applicable to unemployment compensation received in 2020. It allows taxpayers to exclude up to $10,200 per person of unemployment benefits received. So a married couple filing jointly could foreseeably get up to $20,400 subtracted from the jobless assistance they received last year, however the math isn’t straightforward.

The IRS gives the example of one spouse having received $5,000 of benefits and the other getting $20,000. The total amount is $25,000 but the couple would not be entitled to the full $20,400 waiver but only $15,200. The spouse that got $5,000 in compensation gets the whole amount waived, but the second spouse only gets $10,200 of the $20,000.

Should I amend my return?

The IRS told taxpayers not to file an amended return unless the recalculation would make the taxpayer newly eligible for additional federal tax credits and/or deductions that hadn’t been included on the original tax return.

Certain tax provisions can only be claimed based on a filers AGI along with other requirements. One tax credit in particular the IRS specifies is the Earned Income Tax Credit (EITC). Taxpayers who claimed the EITC will have their returns automatically adjusted, but the agency recommends filing an amended tax return for those who did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.

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