In theory, pushing back the individual filing date for 2020 tax returns is pretty straightforward. You simply get another month to put your records together for the new May 17, 2021 due date. But there’s a specific tax code update that many individuals and families will want to keep an eye on. If you received unemployment income in the year 2020, that money might end up being tax-free!
About the American Rescue Plan
As of March 2021, the American Rescue Plan includes an interesting law change. Typically, unemployment compensation will be classified as taxable income when filing your annual tax return. This year, however, the first $10,200 of unemployment income that an individual received in 2020 will be tax-free. That dollar amount goes up to $20,400 for couples (up to $10,200 for each spouse).
It’s important to note that this tax break is connected to federal tax. This also only applies to households with an adjusted gross income that’s under $150,000. Depending on the scenario and tax bracket, some people who are able to benefit from this law might be saving $1,200 or more on their 2020 tax return.
2020 Tax-Free Unemployment Income
While this legislation will come as good news for many, it’s not without a couple hiccups. For one, it didn’t become law until March 2021. And at that time, plenty of people had already filed their return. There were also some complications with the IRS at the beginning on how to actually report this specific tax break. We have a couple of takeaways going forward.
First, if you happened to file your 2020 individual tax return prior to March 2021—just sit tight. You wouldn’t have known to claim that tax-free unemployment income credit. Fortunately, that can be corrected. There’s not even a need to file an amended return for this specific credit. The IRS has stated that refunds will be automatically issued to those taxpayers.
On the other hand, if you’re looking to claim that credit but still haven’t filed, it’s time to get started! You don’t want to rush the process at the last minute or face getting a penalty because of silly errors on your return. Working with a good local CPA and a team of tax professionals will help you stay on track, avoid those mix-ups, and keep your tax responsibility as low as possible. It’s all about finding the right accounting firm to help analyze your personal situation.
Need Help with Your Tax Return?
Running through your tax returns on your own can get really complicated really fast. Especially when there are different changes to the tax code from year to year! That’s why we’re here to keep things simple. NSO and Company works on both business and personal tax returns. We’re based in Fishers, Indiana, and serve the greater Indianapolis area—as well as clients throughout the country!
Whether you have questions about the 2020 tax-free unemployment income, or there’s something else on your mind, please don’t hesitate to give us a call at (317) 588-3131. We’d be more than happy to schedule a time to talk.