Industry Update
Recent Tax Legislation
April 2, 2021
Unemployment Compensation Changes:
The IRS has finally provided guidance on how to handle tax returns that were impacted by the change in Unemployment benefit taxability.
For those returns already filed that are eligible for the unemployment compensation exemption:
The IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.
The IRS can & will adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund.
The IRS will do these recalculations in two phases:
Starting with those taxpayers eligible for the up to $10,200 exclusion.
Then the IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns.
The first refunds are expected to be made in May and will continue into the summer.
Amending Tax Returns:
There is no need to amend tax returns already filed unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.
There are a number of items that are impacted by income changes (especially Adjusted Gross Income) that may require you to amend the returns, those would include items like:
Returns where they did not claim an EIC because of original income limitations
IRA contributions and deductions
Tuition tax credits and deductions
Itemized deductions – portions that are subject to income limitations that may change the total itemized deduction vs the standard deduction
Various states that base their tax on the federal income as well as certain states that allow the itemized portion of deductions despite the standard deduction being taken on federal return. (Keep in mind, many states have not commented on accepting the new federal legislation – or deadline extension for that matter)
And others...
EIP 3 - Payments Continuing
The IRS and Treasury Department announced this week that they anticipate payments will begin to be issued this weekend to Social Security recipients and other federal beneficiaries who do not normally file a tax return, with the projection that the majority of these payments would be sent electronically and received on or after April 7.
After receiving data from the Social Security Administration on Thursday, March 25, the IRS began the multi-step process to review, validate, and test tens of millions of records to ensure eligibility and proper calculation of Economic Impact Payments. If no additional issues arise, the IRS currently expects to complete that work and to begin processing these payment files for next week. Because the majority of these payments will be disbursed electronically – through direct deposits and payments to existing Direct Express cards – they would be received on or after the official payment date of April 7.
Sources: IRS & Refund Advantage & TNH Financial Services, LLC