At least 7M Americans in line to receive $10,200 unemployment tax break
About 7.3 million tax returns processed by the IRS as of early March seem to qualify for the exemption
If you're owed a refund, file your taxes ASAP: CPA
CPA Daniel Geltrude explains when you should file right away and when you should take advantage of the later May 17 deadline.
At least 7 million Americans will likely qualify for tax refunds on unemployment benefits they collected last year, according to a new report.
The $1.9 trillion coronavirus stimulus plan that President Biden signed into law in March, known as the American Rescue Plan, waives federal income taxes on up to $10,200 in 2020 unemployment insurance benefits for individuals who earn less than $150,000 a year.
About 7.3 million tax returns processed by the IRS as of early March seem to qualify for the exemption, according to a Treasury Department report released on Friday. The returns represent a collective $87 billion in jobless aid, according to the analysis.
IRS DELAYS IRA, HEALTH SAVINGS ACCOUNT CONTRIBUTION DEADLINE UNTIL MAY 17
Many of these taxpayers are likely owed a refund from the IRS, because they presumably filed their returns before March 11, when Biden signed the stimulus bill into law. The IRS has advised individuals in this situation to not file another return and promised to automatically refund the money.
The agency previously said it would begin issuing the refunds in May.
"Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund," the IRS said. "The first refunds are expected to be made in May and will continue into the summer."
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The agency said it will do the recalculation in two phases, beginning with taxpayers who are eligible for the $10,200 exclusion. It will then proceed to calculate the new refund for married couples who are eligible for the $20,400 exclusion and other more complex returns.
"There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return," the agency said.
You're eligible for the tax refund if your household earned less than $150,000 last year, regardless of filing status. Workers can exclude the aid when calculating their modified adjusted gross income — meaning that an individual who earned $140,000 last year but collected $10,200 in jobless aid is still eligible to take advantage of the tax break.
The break applies to this tax-filing season, which began Feb. 12 and ends May 17.
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The federal government and most states count unemployment benefits, including the extra money distributed through federal aid programs, as taxable income. But unlike a typical paycheck, taxes aren't automatically deducted from jobless aid, creating a potential for refund shock for millions of out-of-work Americans even though they lost their job.
About 40 million people collected jobless aid last year, according to The Century Foundation. The average person received $14,000 in benefits.