The recently passed $1.9 trillion coronavirus relief bill contains a host of provisions designed to throw struggling Americans a bone. These include $1,400 stimulus checks, enhanced health insurance subsidies, and boosted unemployment benefits.
Not only will jobless workers be entitled to a $300 weekly unemployment boost through early September, but they’ll also get a nice break on their taxes. Normally, all unemployment income is taxable at the federal level, but the new relief bill exempts jobless workers’ first $10,200 in benefits for those earning less than $150,000.
Getting out of paying taxes on $10,200 of income can be a good thing. The problem, however, is that the relief bill wasn’t signed into law until the middle of March. At that point, a lot of people had already filed their 2020 taxes — without accounting for this new provision. Originally, some tax professionals thought filers in this situation would need to submit an amended tax return. But now, the IRS says it should be equipped to handle adjustments to tax returns relating to this exemption on its own. And that could save those who already submitted their taxes a lot of time and hassle.
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New filing instructions
Last week, the IRS released filing instructions for workers who are eligible to claim a tax break on their unemployment income, including a worksheet for filers who submit a paper return. The agency is also working with tax software providers to update their systems to allow for that tax break.
Meanwhile, those who paid taxes on last year’s unemployment income and already filed their tax returns may be able to just sit back and wait for their refunds to hit. Normally, the IRS issues refunds for electronically filed returns within three weeks. (Refunds for paper returns can take twice as long.) Adjusting for this change might push back some refunds, but it’ll also eliminate the headache of having to file amended returns.
The IRS has also moved the tax-filing deadline back one month, so filers now have until May 17 instead of April 15 to submit their returns without facing penalties for being late. Last year, the IRS moved the filing deadline back three months in response to the coronavirus pandemic, but this year, the agency wasn’t planning to adjust that deadline at all. Once the new stimulus package was passed, however, it became clear that it came with tax implications. While this wasn’t the bill’s intent, it did end up buying Americans relief on the tax-filing front as well.
That said, those who are due a refund for 2020 should file their taxes as soon as they’re ready. That way, they can get that money into their bank accounts sooner. This especially applies to people who never got a stimulus payment in 2020 and will be claiming stimulus money on their tax returns via the Recovery Rebate Credit.
View more information: https://www.fool.com/the-ascent/personal-finance/articles/didnt-claim-your-unemployment-tax-break-you-may-get-an-automatic-refund/