That we need to ask this question indicates the chaos gripping this year’s tax season: Last week, Congress passed the American Rescue Plan Act, which includes tax law changes for the 2020 fiscal year. The bill passed four weeks after the IRS began accepting 2020 tax returns. In the words of one tax adviser, this is a “dumpster fire.”
If you already filed your 2020 return, you may eventually need to file an amended return if:
- You received unemployment in 2020. The stimulus bill exempts the first $10,200 of unemployment income from federal tax if your AGI is under $150,000 (or $20,400 for couples with a combined AGI under $150,000).
Depending on your tax bracket, that could add to your tax refund or lead to a lowered tax bill. It also could lower your taxable income, which is used to determine your state income tax liability, as well as your eligibility for other tax credits.
What to do? Nothing at the moment: Wait until the IRS issues guidance, which is forthcoming. That guidance will likely be to file an amended return, which can be done online with the IRS here, or through the online tax application you originally used. But again, wait for IRS guidance.
Can I just wait until next year? Yep. If you don’t need the money pronto, you can just wait until next year, and file an amendment along with your 2021 taxes. This is particularly cost effective if you pay an accountant to do your taxes.
What about the bill’s changes in child-related tax credits? Those are all for 2021, and don’t change your 2020 filings.
Why aren’t accountants griping? They are. But they’re not howling too loudly, because the stimulus bill is a boon: Roughly 40 million people received unemployment last year, many of whom will need paid advice from their local tax expert in the coming months.