IRS Recalculates Taxes on 2020 Unemployment Benefits
- October 26, 2021
- Posted by: BenG-Admin
- Category: Blog, IRS, Taxes
The IRS is recalculating unemployment benefits for 2020 and will start issuing refunds in May.
The IRS has announced that they’re recalculating unemployment benefits for 2020 and will start issuing refunds in May, which means you can finally get your much needed payday if things have been rough this year. Under the new law, taxpayers who earned less than $150,000 in modified adjusted gross income can exclude some unemployment compensation from their income. This means they don’t have to pay tax on some of it. People who are married filing jointly can exclude up to $20,400 – up to $10,200 for each spouse who received unemployment compensation. All other eligible taxpayers can exclude up to $10,200 from their income.”
How does it work?
The new law allows unemployment compensation to be excluded from income.
People who are married filing jointly can exclude up to $20,400 – up to $5000 for each spouse that received unemployment compensation. All other eligible taxpayers can subtract up to $10000 or 50% of their unemployment benefits (whichever is lower) when they file.
When can I file my taxes with this exclusion?
The new unemployment benefit exclusion will be included in the tax filing process for 2020 taxes. The IRS has not yet revealed when taxpayers can file their federal taxes, but it is expected to start sometime between January and April of 2021. State unemployment benefits may vary depending on your state’s policies and procedures.
Who qualifies for the unemployment recipient tax exclusion?
The unemployment recipient tax exclusion applies to unemployment compensation received during 2019 and 2020. The unemployment compensation must be paid under a state or federal unemployment program, which includes:
– Trade Adjustment Assistance (TAA)
– Alternative Trade Adjustment Assistance (ATAA).
– Unemployment Compensation for Federal Employees (UCFE), and/or
– Emergency Unemployment Compensation (EUC) . This is sometimes called Tier I or Tier II benefits covered by the FUTA. All covered unemployment compensation counts toward this requirement except railroad retirement payments treated as social security equivalent benefit payments. If you receive any of these types of unemployment benefits in 2019, then future unemployment benefits will also qualify even if there’s a gap between receiving those first and second.
How do I claim this on my federal income tax return?
To claim unemployment benefits, you must file a federal income tax return. Claim it as an “above the line” deduction on your Form W-40. If you are claiming unemployment compensation for more than one year, attach multiple copies of this form to each additional refund request.
This means that unemployment benefits will be taxed like any other type of earned income (e.g., wages), but can also lead to higher taxes if taxpayers itemize deductions rather than taking the standard deduction when filing their tax returns under new legislation signed into law by President Obama in February 2018 .
For details about how much money you can claim and what other qualifications need to be met, please consult with a qualified accountant or financial advisor.
I hope you’ve found this article helpful and informative. If you have any questions, don’t hesitate to reach out!