IRS Allows Unemployment Compensation To Be Excluded From AGI On 2020 Taxes
As we all know, the pandemic hit some individuals and families much harder than others. While unemployment compensation helped in many cases, it certainly did not cover all expenses for some, and there are still people barely hanging on despite receiving stimulus checks and unemployment.
Do not despair though. As a longtime champion for the underdog, I am happy to report that the IRS has made some tax law changes for 2020 returns that will be helpful to many of the taxpayers who have been hardest hit. If you collected unemployment during 2020, you may be eligible for a fairly substantial bit of relief at tax time.
Earlier this month, President Biden signed into law the American Rescue Plan COVID relief package. This law enables taxpayers who earned under $150,000 in modified adjusted gross income (AGI) to exclude unemployment compensation of up to $20,400 if they’re married filing jointly or $10,200 for all other eligible taxpayers.
Good News For Early Filers Too
If you happen to be an early filer (good for you) and have already filed your 2020 tax return and you collected unemployment during 2020, the IRS knows who you are, and they will start sending refunds later in the spring and into the summer. In fact, the Internal Revenue Service recently said that it plans to take steps to automatically refund money to early filers starting in May and continuing through the summer to taxpayers who filed tax returns reporting unemployment compensation prior to the changes under the American Rescue Plan. This news is good for my firm too, as well as for all tax preparers. We don’t have to file amended returns!
Unemployment Compensation From Prior Years Is Not Eligible For Exclusion
Be aware though that this most recent relief package excludes only 2020 unemployment benefits. It does not apply to unemployment prior to the COVID-19 pandemic. So, if you have not filed your tax return for 2019 and you collected unemployment that year, don’t make the mistake of thinking you can exclude your unemployment income. That will land you in hot water with the IRS and if you haven’t filed that year’s tax return, you’re already in hot water with the IRS. The last thing you need is to get into deeper trouble with them.
For Chronically Late Filers And Those Who Haven’t Filed In A Few Years
If you haven’t filed your 2019 tax return and need help getting sorted out with the IRS, give us a call. As I mentioned earlier, my mission is to help the underdogs. That means helping taxpayers who inexplicably fall behind due to untenable circumstances, which everyone has been through during the past year and a half. Unfortunately, tragic circumstances happen all the time to individuals and families and if you are not practiced at dealing with the IRS, you can end up in even more compromising circumstances. If you are chronically late filing your tax returns you could save yourself thousands by filing on time. This year you have until May 17th to file so now is the time to get started. We are here and ready to help.