DO NOT AMEND

It appears, according to IRS Commissioner Chuck Rettig, that the IRS will automatically process refunds for taxpayers who have already filed their 2020 income tax returns and claimed the full amount of unemployment benefits received as taxable income.  

 

As I explained in a previous post (click here) - “The American Rescue Plan . . . exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000.” 

 

“Do not file an amended return at this time,” Rettig told a congressional panel on Thursday. “We believe that we will be able to handle this on our own. We believe that we will be able to automatically issue refunds associated with the $10,200.”

 

Rettig explained that the IRS would soon officially release details for taxpayers about how to proceed.

TTFN

UNEMPLOYMENT BENEFITS

The American Rescue Plan, signed into law last week, exempts from federal taxable income up to $10,200 in unemployment benefits received in 2020 if your “household” modified AGI is less than $150,000. 

This exemption applies to all unemployment received in 2020, and not just the special federal $600 per week extended benefit passed as part of the stimulus package.  It includes “regular” unemployment benefits paid under a traditional state program.

The $10,200 exemption is per spouse on a joint return.  So, if both spouses received unemployment in 2020, they can each exclude up to $10,200.  The $10,200 is “per spouse” – as IRS guidance explains, if one spouse received $20,000 in unemployment and the other received $5,000 the total amount you can exclude is $15,200 ($10,200 + $5,000).

Your “modified” AGI for claiming the exemption is your AGI before subtracting the exclusion of unemployment benefits.  The $150,000 income threshold applies to Single filers, Head of Household filers, and joint filers.  If you are single or a Head of Household you can exclude up to $10,200 if your AGI is $149,999 or less.  If you are married filing a joint return you can exclude up to $10,200 each if your AGI does not exceed $149,999.  The exclusion does not “phase-out” at $150,000.  If your AGI is $149,999 or less you can exclude $10,200 per taxpayer.  If your AGI is $150,000 or more you cannot exclude anything – all of your unemployment is fully taxable.  So, $1.00 in actual income can increase your net taxable income by at least $10,200 or $20,400!  I do not know yet how this $150,000 threshold applies to separate returns filed by a married couple.

The gross amount of unemployment received, as reported on Form 1099-G, is reported on Line 7 of Schedule 1.  The amount of the exclusion is reported as a negative number on Line 8.  Write “UCE” and show the amount of the exclusion claimed in parentheses on the dotted line at Line 8. 

A single filer who received $16,000 in total unemployment would enter $16,000 on Line 7.  If the taxpayer had no other “other income” to report on Line 8 he or she would enter ($10,200) on Line 8.  If these were the only entries on Schedule 1 Part 1 Line 9, carried over to the Form 1040 or 1040-SR, would be $5.800. 

Go here for the official IRS explanation of how to claim the exemption.

TTFN

FYI

 

Here is a reminder of some things you need to be aware of when planning for and preparing your 2020 income tax returns.

* The IRS was closed for 3 months beginning at the end of March.  During this time mail was not opened and returns were not processed.  As a result, the issuance of requested refunds was seriously delayed.  Due to the excessive delay the refund checks finally received by taxpayers included a payment of interest calculated from April 15, 2020 till the date of issuance. 

This interest is taxable income for 2020.  You will receive a 2020 Form 1099-INT from the Department of the Treasury (IRS) in January of 2021, and this income must be reported on your 2020 Form 1040 (or 1040-SR) and state income tax return.

* Unemployment benefits received in 2020 due to the pandemic are fully taxable on your 2020 federal income tax return, and may also be taxable on your 2020 state income tax return (not on the New Jersey state return). 

As most individuals collecting unemployment in 2020 needed every penny of the benefit. I expect they did not request federal income tax withholding on their benefits, and may end up owing federal income tax on their 2020 Form 1040 or 1040-SR.

Many states, New Jersey included, no longer mail out a paper Form 1099-G to report unemployment benefits paid and federal income tax withheld.  If you received unemployment in 2020 you may need to go to your state’s unemployment benefit website – the site you used to apply for unemployment – and download a copy of your 2020 Form 1099-G to give to your tax professional.

* The Economic Impact Payment – a maximum of $1,200 ($2,400 if married filing jointly) plus $500 for each qualifying child you had in 2020 – is not taxable income.  You do not have to report the amount you received as income on your 2020 income tax return. 

But, like the Advance Premium Credit, this payment must be reconciled on your 2020 Form 1040 or 1040-SR.  If you got more than you should have you do not have to pay back the excess.  But if you did not get a payment or you got less than you should have you can claim a refundable Recovery Rebate Credit on your 2020 federal income tax return.  So, you will need the amount you received when preparing your 2020 return

Any questions?

TTFN

OH NO THEY DIDN'T!

Oi vey – by accident I came across this bad news from the NJ Department of Labor and Workforce Development website over the week-end (highlights are mine) -

“Tax Form 1099-G ‘Certain Government Payments’ will no longer be mailed to recipients of Unemployment Insurance benefits in New Jersey.  You will be able to obtain this information by using our online 1099-G Income Tax Statement application.

Form 1099-G reports the total taxable unemployment compensation paid to any individual who received New Jersey Unemployment Insurance (UI) benefits for a specific calendar year.

The online 1099-G application will be available in late January 2014 and it will provide you with your New Jersey Department of Labor and Workforce Development (LWD) 1099-G Income Tax Statement, which you can view and print through the online application.  LWD will update our website when this information becomes available.

To use the online 1099-G application, go to the Unemployment Insurance page of the LWD website at www.njuifile.net.  Once you have signed into the application, click on View/Print 1099-G Tax Statement and then simply click continue after reviewing the instructions.

You will need your online user ID, password and Personal Identification Number (PIN) to access your tax information.  Before trying to access your tax information, you must have a PIN.   If you cannot remember your PIN or are having difficulty with it, please contact one of our Regional Call Centers for assistance.

If you received Disability Benefits During Unemployment (DDU) or Paid Family Leave Insurance (FLI) benefits during the tax year 2013, you will still receive your tax information on form 1099-G by mail.  If you also received unemployment benefits during that same period, you will have to visit the website to obtain the 1099dG tax information.”

What brain decided on this?  A very bad idea!

NJ stopped mailing out 1099-Gs for state income tax refunds a few years ago.  But this is not a problem.  It is easy to see if a client should have received a state tax refund by simply looking at the prior year return.  And it is easy to access these 1099-G forms online for verification with basic taxpayer information.  It is a different story with unemployment benefits.

I will now have to ask every single client if they received NJ unemployment benefits at any time in 2013, and tell those who did to go to www.njuifile.net to download the form, or ask if they still have, or know, their user ID, password and PIN so I can access the form ourselves.

More work for me, and my fellow NJ tax pros, and more wasted time when there is no time to spare!

This is going to cause a lot of agita for the IRS.  Many taxpayers erroneously believe that you only have to report income if you get a Form 1099 – so there is going to be a lot of non-reporting of unemployment benefits by NJ taxpayers on 2013 Form 1040s and 1040As!

I only learned it by accident.  It was not reported by the NJDOT speakers at the recent NJ-NATP state tax update.  How will taxpayers know that they must go online to get their 1099-G?  Is the NJDOLAWD going to mail a notice to all unemployment recipients?  And if so, why not just mail out the 1099-Gs?

I predict there will be tons of CP-2000 notices sent to NJ taxpayers in 2014!

NJ does not tax unemployment benefits.  So this does not affect the NJ-1040.  It is obvious that the cafones in Trenton do not give the proverbial tinker’s damn about the substantial inconvenience this decision will cause NJ unemployment recipients, NJ tax preparers, and the IRS.

Regular visitors to TWTP probably know by now that I do not suffer fools well – hence my disgust with the idiots in Congress.  It seems that Washington is not the only city full of idiots – there are apparently a lot in Trenton as well!

TTFN