Congress’ recent move to retroactively make a portion of 2020 unemployment income tax-free is creating havoc during this year’s tax filing season. Here is what you need to know.
Unemployment compensation was received by millions of Americans during 2020 because of the pandemic. While unemployment income was necessary for many who lost a job, it’s also normally classified as taxable income to be reported on your tax return. Recently-passed legislation now makes the first $10,200 of 2020 unemployment compensation tax-free on your tax return.
The new legislation which contains this tax break didn’t become law until March of 2021, a full three months after the end of the tax year and after millions of Americans had already filed their 2020 tax return.
Understanding your situation
• If you’ve already filed your 2020 tax return: Wait for further instructions. The IRS is trying to figure out a way to automatically apply this tax break for taxpayers who have already filed their 2020 tax return. This will avoid the need to file an amended tax return. There is no need to call at this time as the IRS has not provided further guidance.
• If you HAVE NOT filed your 2020 tax return: The IRS has issued guidance on how to report this tax break on your 2020 tax return if you have not already filed.
• Tax deadline moved to May 17. Because of all this havoc, the April 15 deadline for individual tax returns is now May 17. This extension applies only to Form 1040s. First quarter estimated tax payments for the 2021 tax year are still due by April 15.
One of my primary objectives is to help you achieve your financial goals through a holistic approach that is tax-efficient in my wealth management and tax resolution practice.
For more information, visit www.fredtfoxiii.com.