- Millions of people could deduct up to $10,200 in unemployment benefits from their income in 2020.
- Because the change occurred after tax season had begun, the IRS stated that it would auto-correct early returns.
- It issued 12 million refunds due to the corrections, but more people may be entitled to a refund, which should have been noticed.
- You must revise your 2020 tax return if you are one of them. Accountants warn that this will be a challenging task.
Many Americans may still be owed money from their 2020 tax returns, but they must now find and claim it independently.
According to the American Rescue Plan Act, individuals receiving unemployment benefits in 2020 could deduct up to $10,200 (or double that for couples) from their taxable income if they earned less than $150,000 annually.
Because this one-time pandemic-relief change occurred in March 2021, after tax season had begun and 76 million Americans had already filed their returns, the IRS stated that it would make the necessary corrections.
However, earlier this month, the IRS announced that it had completed its corrections and that anyone who had been overlooked would now have to file an amended return.
Basically, the IRS has shifted the burden of correcting old tax returns back to taxpayers. Though it’s difficult to say how many people are affected, accountants warn that the unlucky ones will have to file a 1040-X, the amended tax form required to correct the problem.
“The 1040-X is most likely not intuitive,” said Ryan Losi, executive vice president of certified public accounting firm PIASCIK. Accountants warn that most people who need to amend their returns will have to pay someone to assist them or purchase additional software to figure it out.
What makes filing an amendment so complicated?
According to Mark Steber, chief tax information officer at tax preparer Jackson Hewitt, it’s not as simple as deducting unemployment benefits from your taxable income or adjusted gross income (AGI).
“You have to think about what else is in return,” he said.Because changes in AGI can directly impact the deductions and credits you are eligible for. “You might be able to get some of those now.”
The IRS noted that many of the adjustments in the approximately 14 million returns it corrected included corrections to the:
- Earned Income Tax Credit (EITC)
- Credit for Recovery
- Extra Child Tax Credit
- Tax Credit for Americans with Disabilities
- Tax Credit for Premiums
- Tax Credit for Advance Premiums
State income tax returns may also need to be amended, according to Steber. Many states that have an income tax base use your federal taxable income to calculate your state taxable income.
Improved footing: The IRS tax backlog is smaller in the run-up to the 2023 tax season than it was in 2022.
Your money will be doubled:
If you file your taxes early, you may be able to double your refund. Jackson Hewitt is an actor.
One last wrinkle is that, even if filed electronically, amended returns must still go through the old IRS manual process behind the scenes. “Someone still has to key it in manually,” Steber said after the IRS received them. That means it will take a few months to receive a refund if you are owed one, assuming no problems arise.
Is it worth to file an amended tax return?
It depends on whether you believe you are entitled to a refund and how much it may be. The amended returns cannot be filed using the IRS free file. The IRS said it issued 12 million refunds totaling $14.8 billion, with an average refund of $1,232, of the roughly 14 million returns it corrected.
First, check your 2020 tax return to see if the unemployment compensation exclusion was included in your 1040. If you received unemployment benefits but did not enter an exclusion, you could use the IRS’ unemployment compensation exclusion worksheet to determine how much you overpaid. It may be difficult to predict how much the unemployment exclusion will affect your federal and state returns, so Steber recommends having your return reviewed by a professional.
What you’ll have to pay: What are the federal tax brackets in the United States in 2022? What are the new tax brackets for 2023? Answers can be found here.
A tax break has been created:
New parents’ tax season guide for 2023: What you should know about the Child Tax Credit and other topics
Large tax preparers, such as Jackson Hewitt, provide free “lookbacks,” which review up to three years of previous returns to see if everything was accounted for or was missed.
If the preparer discovers something, it will offer to amend and resubmit it for a fee. Steber says prices vary depending on the location and complexity of the return, but “usually, it’s a pretty low fee.”
If you still need help or have tax problems, consumers can seek assistance from the Taxpayer Advocate Service, an autonomous organization within the IRS.
What is the time limit for filing an amended return?
The IRS states that amended returns must be filed within three years of filing your original return or within two years of the date you paid the tax, whichever is later. That means you have until next year to file an amended 2020 tax return.
However, as with any other tax return, whether amended or not, filing earlier is always preferable, according to Steber.