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The IRS Will Automatically Correct Tax Returns for Unemployment Tax Breaks

by
Gordon W. McNamee
on
6/16/2021
The IRS Will Automatically Correct Tax Returns for Unemployment Tax Breaks

If you are one of the millions of Americans who filed your 2020 income tax return before the American Rescue Plan made the unemployment benefits you received tax-free, we have very good news for you: the IRS has announced that they are going to automatically revise your return to reflect the change, so there’s no need for you to file an amended return.

If you still haven’t submitted your taxes, here’s what you need to know. Back on March 11, 2021, when the American Rescue Plan stimulus relief bill was passed by Congress and President Biden signed it into law, it meant that people who had filed for unemployment benefits in 2020 qualified for as much as a $10,200 tax break. The exact amount of the refund will depend on how much you earned during the year and how much you paid in taxes on your unemployment benefits. In an effort to provide relief to people who had suffered job losses during the global pandemic, the unemployment benefits that are normally fully taxed (and reported on your tax return as income) were declared not subject to taxes.

On previous years – and maybe this year too – your state unemployment insurance agency would have sent you a 1099-G form to attach to your tax return, showing what unemployment benefits you were paid during the year and how much tax you paid on those benefits. But with the American Rescue Plan’s tax break, individuals who are single and in the 22% tax bracket are eligible for a $10,200 break that translates to savings of $2,244, and double that for married couples where both partners qualify.

If you haven’t submitted your taxes yet, you can go ahead and show the tax break on your return. But for the approximately 10 million individuals — representing a little less than half of those who filed for unemployment during the pandemic — that the IRS says filed their returns before the law was passed back in March, the agency has announced that it will automatically make the adjustment to reflect the lower amount of tax due. There’s no need to submit any additional paperwork.

Though the automatic corrections represent a significant savings of time, effort, and money for those who had already submitted their returns before the law was passed, if you’ve determined that there are other deductions for which you are eligible that you forgot to include on your return, then filing an amended return is still the only way to go.

Contact your tax professional to discuss your options.

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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