IRS Guidance Trickles In For The American Rescue Plan
With the recent passage of the American Rescue Plan, many taxpayers have a ton of questions. Guess what? So do tax professionals. We know what is in the law, but we don't really know how the IRS will implement it. However, that has now changed. While we don't have much information, we will share what we do know.
Do NOT Amend Your Tax Return If You Received Unemployment
The new law allows for a retroactive tax change in which the first $10,200 of unemployment income in 2020 will not be subject to income tax. However, many taxpayers have already filed their tax return claiming this income as taxable. Your first thought may be to file an amended tax return. However, the IRS has come out and asked taxpayers not to file an amended tax return until they issue additional guidance. I would love to say that this means maybe they'll make the correction on their own, but we shouldn't hold our breath. In short, those who have filed have to wait while the IRS decides their next move.
Meanwhile, there are many individuals that received unemployment during 2020 that have not yet filed. Once again, the IRS advises on waiting. For paper filers, they are coming out with a brand new worksheet to attach to your tax return. For those who use tax software (including tax professionals), the IRS states that it is working diligently to update software providers so that those returns can be filed "soon".
While all this is going on, many of you are wondering, what about the state return? Is the unemployment tax-free for the state too? Each state will have to determine this on their own. So, once again, it's hurry up and wait.
The IRS has now released IR-2021-54, which states that the third round of economic impact payments will begin to be deposited over the next week. However, the American Rescue Plan Act payment, differs from the earlier payments:
Most families will get payments in the amount of $1,400 per person. However, the big difference is that parents will get a stimulus check for ALL qualifying dependents. That means that parents will even receive stimulus payments for their college students (please note that your dependent will NOT get their own stimulus check; it goes to the parent). Also, individuals who are claiming adult relatives will also receive a payment for those dependents as well.
Starting Monday, the IRS should allow you to track your stimulus payment via the IRS GET MY PAYMENT TOOL.
Unfortunately, this recent round of data offers very little information. We will continue to update you as we receive more information. For now, to amend the statement of my favorite fish from a Pixar movie, "Just keep waiting, just keep waiting!" Hang in there everyone. This is going to be a long ride.