If you collected unemployment benefits last year, it might actually behoove you to be a procrastinator.
That’s because a new provision of the American Rescue Plan Act passed last week waives income taxes on the first $10,200 of unemployment benefits from 2020, despite the fact that we’re midway through the 2020 tax filing season. The IRS says it’s still figuring out how to handle returns that have already been filed, and for now, no one should file amended returns.
For those who haven’t filed yet, the IRS is further along. On Friday, the agency said it’s working with the software industry to update current tax software, and paper filers will be provided a worksheet to account for the tax break on their return.
The tax waiver, meant to limit surprise tax bills for people who lost their jobs during the pandemic, applies to taxpayers making under $150,000. Assuming a 10% tax rate, the benefit could save taxpayers as much as $1,020 each. Each member of a married couple can exclude $10,200, according to the IRS.
Recognizing the potential burden on millions of early filers, a group of lawmakers has asked the IRS and Treasury Department to determine the feasibility of automatically adjusting taxable income and delivering refunds without requiring amended returns.
Might they consider that? An IRS spokesperson had nothing further to add to the guidance on the agency’s website. So for now, the message for early filers is: Sit tight.