On March 11, President Biden signed into law the American Rescue Plan, which aims to provide additional relief to Americans that are struggling due to the ongoing COVID-19 pandemic. As part of this relief, up to $10,200 in unemployment compensation that you received in 2020 may now be tax free.
To qualify for this relief, you must have received unemployment compensation in 2020, and have a modified adjusted gross income (AGI) less than $150,000. If you are married, each spouse receiving unemployment compensation can exclude unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.
Because this change was made after the IRS began accepting 2020 tax returns, it is possible that you have already filed your 2020 return. If you are one of the many people who discovered that you are eligible to exclude unemployment compensation after filing your 2020 tax return, the IRS asks that you not file an amended tax return. Instead, the IRS has announced that it will automatically refund money to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan. These automatic refunds are expected to sent over this spring and summer.
This is a developing story, and details may have changed after this story was published. If you have questions about the American Rescue Plan and how it might affect your tax return, please contact our office.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.