With tax season in full swing, there’s some good news for those who haven’t filed yet: The deadline has been extended from April 15 to May 17 for individuals.
A short-staffed IRS is handling an even more hectic filing period because of the COVID-19 crisis. People moved, many Americans were laid off and President Joe Biden’s large-scale relief package includes a new round of direct payments (referred to by some as stimulus checks) and tax exemptions for unemployment benefits.
Millions received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000.
Andrea Parness, a certified public accountant based in New York, and Francine Lipman, a law professor at the University of Nevada, Las Vegas, joined us to answer some of your questions.
If you have additional questions, let us know in the submission form below.
I filed my 2020 return already. Now that the [American] Rescue Plan has passed, which includes forgiveness on the first $10,000 of unemployment earnings, do I need to file an amended return to get the money back for the taxes I already paid? — Marla Sanders from Houston
Simply put, you do not need to file an amended return at the moment. The IRS will issue additional guidance, the agency said. “The IRS will refigure your tax liability based upon the way you filed,” Parness said.
However, Parness noted that “you may choose to file a corrected tax return if you and your tax professional feel you will benefit from filing a different way, based upon this new development.”
If you have yet to file, the IRS has created an Unemployment Compensation Exclusion Worksheet to help you calculate how much unemployment income you can exclude. And some states already exempt taxes on unemployment benefits, including California, New Jersey and Pennsylvania. (A full list of state policies toward unemployment benefits is available here.)
My daughter did not receive the first stimulus check, and we have no idea why not. She’s 25 and was not listed as a dependent on our taxes, and she filed her own for 2019, although she did file an extension. Will she get that first stimulus money as a tax refund for her 2020 return? — Rosie Fussell from Winter Garden, Florida
Parness said this is a common question she’s seen as a CPA. Some of the reasons people may not have received a check last year are that they opened a new bank account or they moved.
But mistakes happen. If you were eligible but never received that check, you can report this on your 2020 return and say you didn’t get your money, according to Parness.
“You will show the amount you received and what you were entitled to,” Parness said. “The difference will show up as an additional tax payment, which may increase your refund or reduce your balance due.”
The IRS has a 2020 Recovery Rebate Credit available for those people.
“If they’re entitled, they’re going to get it,” Parness said. “It’s just a little upsetting, I know.”
Can someone having a baby this year get the $1,400? — Linda Denmark
If you’re otherwise eligible for the full relief check, yes, you should be getting an additional $1,400 for a child born in 2021, according to Parness and Lipman.
Parents can receive that payment once they file their 2021 taxes in 2022, Lipman said.
According to the eligibility requirements, individuals earning up to $75,000 will receive the full $1,400 payment, as will each member of a married couple earning up to a combined $150,000, along with $1,400 for each dependent. Beyond those thresholds, the amount you receive will decrease, with checks zeroing out for those who make more than $80,000 and couples making more than $160,000.
Will the budget for the IRS ever increase? When are they going to get a new computer system? When I talk to the helpful and professional staff by phone, they regularly tell me that they are having a problem with their computer. — Ryan Pierson from West Jordan, Utah
Lipman expects Congress will eventually appropriate more money for the IRS because lawmakers from both parties have expressed interest in increasing its budget.
Republicans such as Rep. Steve Womack of Arkansas have suggested they’re open to higher funding, while Democratic Rep. Ro Khanna of California has proposed a bill that would give the IRS $70 billion — a portion of which would go toward updating the agency’s technology.
“Congress keeps giving them more and more work, and then not funding them,” Lipman said. “In addition, they’ve lost so many people, and recently, there’s been a lot of news about how the richest people are not paying the amount of tax they owe under current law.”
At a congressional panel this month, the head of the IRS said the government could get $5 to $7 back for every dollar added to its enforcement budget.
IRS Commissioner Charles Rettig said a $1 billion increase would enable the agency to hire an additional 4,500 revenue officers and agents. In the past decade, budget cuts have led to the loss of 15,000 enforcement staff members.
“I think there’s enough outrage not only in Congress, but also among the masses, with people saying, ‘Gosh, you’ve got to get this fixed,’” Lipman said.
Do you agree with the common wisdom not to file 2020 tax returns until receiving a stimulus check?
My spouse qualifies until we alert the IRS we married. I got married in January 2020 and my spouse only worked half the year to be home with our two kids at the height of COVID — our second was born in August last year. While this meant my spouse’s earnings amounted to less than $40,000, I brought home six figures. Upon filing our joint 2020 return, will we be penalized or required to return the $1,400 stimulus check? — Stephen Robertson from Durham, North Carolina
It depends on how much you made each year. For the first two stimulus checks, you qualified based on your 2018 or 2019 tax returns, whichever was most recently filed. If people were going to receive more money based on their 2018 return because they had a higher income in 2019, Parness said she advised them to hold off on filing their ’19 return until their money came.
“So maybe somebody got a big bonus in 2020. And their income is much higher, and they’re no longer eligible for a stimulus,” Parness said. Holding off until you’ve gotten your third stimulus payment would be a good idea. And vice versa: If you made less in 2020, it’d be a good idea to file as quickly as you can. However, millions of Americans have already received their third payment.
Lipman said upon filing your 2020 return, you won’t have to give back any stimulus payment.
If I have a dependent on my 2020 tax return that was on another person’s 2019 tax return, but not on their 2020 return, which one of us will receive the $1,400 for that dependent? — Mark Triplett
Parness said if the other person has his or her dependent on their 2019 tax return and hasn’t filed for 2020 yet, he or she should receive the latest $1,400 stimulus check since it’s based on whether your 2019 and 2020 return is the latest on file. If he or she did file their 2020 return before the $1,400 payment was made, the IRS should note the correction and not send them those funds.
However, if that person claims this dependent on his or her 2021 return, he or she will be entitled to that $1,400 when they file their taxes in 2022.
If you have a dependent on your 2020 tax return and filed early, you should also get that $1,400. If you haven’t filed yet, by the time you do file your 2020 return, you can retroactively claim dependent benefits.
“Timing and proactive action is everything. When you understand the laws, their purpose and how they relate to your situation, you can plan for the best possible consequences,” Parness said.
If you have tax questions you want answered ahead of the filing deadline, let us know below:
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