San Francisco Tax Preparation / CPA: IRS Announces Issuance of Refunds and Recalculation of Taxes

Filed in CCH NEWS FEED by on May 14, 2021

The IRS has announced steps to automatically refund money this spring and summer to taxpayers who filed their tax returns reporting unemployment compensation before the recent changes made by the American Rescue Plan (ARP) ( P.L. 117-2). For those who have already filed, the IRS will do these recalculations in two phases.

First, it will start with those taxpayers eligible for up to $10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for up to $20,400 exclusion and others with more complex returns. Moreover, taxpayers need not file an amended return unless the calculations make taxpayers newly eligible for additional federal credits and deductions not already included on the original tax return.

For example, the IRS can adjust returns for taxpayers who claimed the Earned Income Tax Credit (EITC). Because the exclusion changed the income level, taxpayers may now be eligible for an increase in the EITC amount which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income. More information can be found at https://www.irs.gov/forms-pubs/new-exclusion-of-up-to-10200-of-unemployment-compensation.

The ARP allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxes.

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