Unemployment Tax Exclusion Automatically Recalculated — Refunds On The Way

If you received unemployment benefits in 2020 and filed your tax return before the American Rescue Plan was signed into law on March 11th, you will not need to file an amended return to claim this deduction! The Internal Revenue Service (IRS) is automatically recalculating your tax return and beginning in May, will start issuing those refunds.

Under normal circumstances, unemployment compensation is considered taxable income. As part of the COVID-19 relief package signed into law, the unemployment credit is for people with modified adjusted gross income under $150,000. If you meet that requirement, married, filing jointly taxpayers will be able to deduct up to $20,400 from their total taxable income. Those filing as single, will be able to deduct taxes on up to $10,200 from their unemployment compensation.

If your income level was near the qualifying requirements to take advantage of other federal tax credits and deductions, like the Earned Income Tax Credit (EITC), the reduction of either $20,400 or $10,200 could trigger eligibility. If so, you will need to file an amended return to claim those credits. The IRS created the EITC assistant to check if your adjusted income will qualify. Remember to also review your state tax return for these credits.