Thursday January 20, 2022
Automatic Unemployment Compensation Refunds
Due to the COVID-19 pandemic, millions of Americans were out of work and received unemployment compensation in 2020. The American Rescue Plan signed on March 11, 2021 permits taxpayers with less than $150,000 in modified adjusted gross income to exclude part of their unemployment compensation from their 2020 tax returns. A married couple filing jointly may exclude up to $20,400 and an individual may exclude up to $10,200 of unemployment compensation.
Because many people had filed their taxes prior to passage of the American Rescue Plan, the IRS decided to take action to avoid large numbers of individuals being forced to file amended tax returns.
The IRS will calculate the correct amount of income and automatically process a refund or credit the correct amount to the 2021 tax obligation of affected individuals. The IRS plans to tackle this in two stages. First it plans to calculate the tax refund for individuals eligible for the $10,200 exclusion. In the second stage, it will make adjustments for married taxpayers filing jointly who qualify for up to $20,400 of excluded unemployment compensation and other more complex tax return situations.
The IRS emphasizes that taxpayers should not file an amended return to claim the refund.
The IRS also announced that it is extending the window for certain retirement contributions until May 17, 2021. The extension will apply to the option for individuals to make 2020 contributions to IRAs, Roth IRAs, health savings accounts, Archer Medical Savings Accounts, and Coverdell education savings accounts. It previously extended the April 15, 2021 deadline for filing and paying taxes to May 17.
The IRS reminded taxpayers that the May 17 extended date does not apply to estimated tax payments. The estimated tax payment normally payable on April 15, 2021 will still be due on that date.