$ 10,200 discount on unemployment tax
The American Rescue Plan exempted federal taxes on up to $ 10,200 of unemployment benefits, per person, received in 2020.
However, President Joe Biden signed Covid’s $ 1.9 trillion relief measure on March 11 – about a month after the start of the tax season.
Tax cuts can make some families eligible for tax incentives for which they did not qualify based on their income when they originally declared their taxes.
This is because tax cuts technically exclude taxpayer income benefits, thereby reducing the income on which they pay taxes.
This income reduction may make them eligible for income-dependent tax incentives, such as Earned Income Tax Credit, according to the IRS.
“It is not a court decision,” said Henry Grzes, chief manager of the tax ethics and practice team at the American Institute of Certified Public Accountants. “It is a pure exercise of arithmetic.”
Amended tax return
Filing a corrected statement is not a requirement – but people may be leaving money on the table if they don’t, Grzes said.
Taxpayers do not need to file an amended statement immediately. They will generally have up to three years from this year’s tax deadline (May 17) to do so, Grzes said.
It is unclear how many taxpayers may have to file an amended tax return to maximize their refund. The IRS did not respond to a request for comment.
The agency will start issuing refunds automatically from May and continue through the summer, the IRS said on Wednesday.
About 40 million people received unemployment insurance in 2020, according to the Century Foundation. The average person received $ 14,000.
The unemployment tax cut is not available for taxpayers whose modified adjusted gross income is $ 150,000 or more. This income ceiling is the same, regardless of the status of the claim (as a single or married), but the calculation excludes unemployment benefits.
Earned income tax credit
In addition to earned income credit, there are not many tax incentives that unemployed individuals would likely be eligible for, Grzes said. They may also qualify for child care and dependent credit, for example, he said.
The earned income tax credit is a refundable tax credit available to taxpayers who received certain types of income in 2020, such as wages and self-employment earnings. Eligibility and the amount of income vary according to the number of children.
The maximum credit is $ 538 for childless taxpayers. That maximum is $ 6,660 for taxpayers with three or more qualified children.
Single filers without children can claim income tax credit from work if their adjusted gross income is less than $ 15,820. An archiver with three children can earn up to $ 50,594 and be eligible.
Jointly married filers without children are eligible with up to $ 21,710 of income; this rises to $ 56,844 for joint filers with three children.
The IRS can automatically adjust the statements of taxpayers who initially claimed the earned income credit and can now be eligible for an increase in the credit amount (and a potentially larger repayment). In other words, no amended tax returns would be required in this case.