Tax Tip Tuesday: “things you should know about unemployment adjustments”

Some taxpayers have begun receiving additional payments from IRS. These payments are due to changes to the return as a result of nontaxable Unemployment.

The American Rescue Plan Act passed in mid-March made the first $10,200 of 2020 unemployment exempt from tax (subject to income limits). At that time millions of returns had already been filed showing the unemployment income as taxable.

UNEMPLOYMENT ADJUSTMENTS are being made automatically by IRS for returns affected by this change. IRS began recalculating returns and processing the adjustments in late May and will continue working through the returns affected throughout the summer. IRS has said they will process the adjustments in a phased approach with the first adjustments being for single taxpayers with no dependent related credit. They will continue to work through other returns in a phased approach.

It is usually not necessary to file a corrected return for the exclusion of unemployment. However, if the return is “newly” eligible for a credit due to the unemployment becoming non- taxable, an Amended Tax Return is needed to claim the credit. For example, if the return was not eligible for Earned Income Credit due to income phaseout but with the reduction in income due to nontaxable unemployment it becomes eligible for EIC, the taxpayer will need to file an Amended Tax Return to claim the EIC.

Approximately 30 days after the return is adjusted by IRS, the taxpayer will receive a notice explaining the change. Taxpayers should keep any notices they receive to verify that the adjustment was correct.

In most cases, amounts that are refunded due to the adjustment will be sent to the direct deposit account on the 2020 return or a paper check will be mailed to the return address.

** It is always recommended that you keep a log of any payments received from IRS including date, amount, and reason for the payment.

If you have questions about the unemployment adjustment you may be eligible for on your 2020 tax return and would like help from the Tax Professionals at H&R Block, please call 931-728-9462. H&R Block has your back in Manchester!