NICKELL TAX & FINANCIAL PLANNING
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INDIVIDUAL 2020 TAX RETURN NOT DUE UNTIL MAY 17, 2021
AMERICAN RESCUE PLAN MAKES
CHANGES TO 2020 TAXES
1. Exclusion of up to $10,200 of Unemployment Compensation.
If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
2. No payback of excess advance Premium Tax Credits for those with Covered California
The American Rescue Plan temporarily waives the requirement for taxpayers to pay back excess advance PTC to the IRS. This will protect people at all income levels by not requiring any repayment for the 2020 tax year.
This means if you receive Health Insurance through Covered California and
you underestimated your income for 2020, you will not be subject to the
Excess Advance Premium Tax Credit repayment.
The IRS has given guidance on how the unemployment change is to be implemented on the Federal tax returns but the IRS has not yet given guidance regarding the changes to the Excess Advance Premium Tax Credit.
Currently, the IRS has also advised that you should not yet amend returns that had Unemployment Compensation or Repayment of the Advance Premium Tax Credit. Official IRS guidance is forthcoming.
As soon as we have these updates, we will be contacting any client who has already completed and filed their 2020 tax return who had unemployment or Covered California to let you know how these changes may affect you.
We thank you for your patience and continued support as we work to implement these changes as soon as possible.
- Seth Fuhrer, CEO
3rd ROUND STIMULUS
THE 3RD ROUND OF THE ECONOMIC IMPACT PAYMENTS HAVE BEGUN
Those eligible will automatically receive an Economic Impact Payment of up to $1,400 for individuals or $2,800 for married couples, plus $1,400 for each dependent. Unlike EIP1 and EIP2, families will get a payment for all their dependents claimed on a tax return, not just their qualifying children under 17. Normally, a taxpayer will qualify for the full amount if they have an adjusted gross income of up to $75,000 for singles and married persons filing a separate return, up to $112,500 for heads of household and up to $150,000 for married couples filing joint returns and surviving spouses. Payment amounts are reduced for filers with incomes above those levels.
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UPDATE - 3/19/21
The IRS to Handle Unemployment Returns, Don't Amend!
Returns filed with unemployment benefits prior to the $10,200 exclusion should not be amended. The IRS has indicated it will refigure taxes on these returns and adjust the taxpayer's account accordingly. The IRS will then send any refund amount directly to the taxpayer