money Workers don't need to amend their taxes to get break on unemployment benefits
Jobless workers who already filed their taxes won't need to amend their return to take advantage of the newly-enacted tax break on unemployment benefits, according to the commissioner of the Internal Revenue Service.
"We will be able to announce that individuals will not have to file amended returns to take the exclusion for the $10,200 per person," IRS Commissioner Charles Rettig said at a House Ways and Means Committee hearing on Thursday "We hope to be able to announce that in the near future."
Under the $1.9 trillion stimulus deal, the first $10,200 in unemployment benefits aren't taxed for eligible filers. But because the legislation was signed into law halfway through the tax season, it was unclear what taxpayers eligible for the break should do if they filed their federal return already.
"The people who filed should absolutely not file an amended return," Rettig said. "We believe that we will be able to automatically issue refunds associated with the $10,200."
Filers whose tax returns have been processed will receive two tax refunds: the first reflects how they filed and second refund will reflect any tax break they get on their unemployment benefits.
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Both regular unemployment benefits and the jobless benefits provided by the stimulus legislation are subject to income tax. But the newly added tax exemption is for the first $10,200 of unemployment benefits; any benefits above that threshold are taxable. The break applies to the 2020 tax year and for households making up to $150,000.
The break would increase a taxpayer's refund by about $1,000 or reduce their tax liability by the same amount, according to estimates from Andrew Stettner, an unemployment insurance expert and senior fellow at the Century Foundation.
"The surprise tax bill that a lot of people got on unemployment was really disappointing and confusing and anxiety-producing," he said. "Easing that, I think, it can psychologically help a lot of people right now."
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Withholding taxes on your unemployment benefits is voluntary. Recipients can choose to withhold a flat rate of 10% from their benefits. If none is withheld, filers must pay the taxes owed when filing their returns.
This year, the filing season opened on February 12, a delayed start compared with previous years, leaving Americans with less time to prepare their returns. This week, the IRS pushed the original April 15 deadline to May 17, giving Americans a month longer to work on their taxes.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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