New 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. If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.

The exclusion should be reported separately from your unemployment compensation. See the updated instructions and the Unemployment Compensation Exclusion Worksheet to figure your exclusion and the amount to enter on Schedule 1, line 8.

When figuring the following deductions or exclusions from income, if you are asked to enter an amount from Schedule 1, line 7 enter the total amount of unemployment compensation reported on line 7 (unreduced by any exclusion amount) and if you are asked to enter an amount from Schedule 1, line 8, enter the amount from line 3 of the Unemployment Compensation Exclusion Worksheet. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

Taxable social security benefits (Instructions for Form 1040 or 1040-SR, Social Security Benefits Worksheet)
IRA deduction (Instructions for Form 1040 or 1040-SR, IRA Deduction Worksheet)
Student loan interest deduction (Instructions for Form 1040 or 1040-SR, Student Loan Interest Deduction Worksheet)
Nontaxable amount of Olympic or Paralympic medals and USOC prize money (Instructions for Form 1040 or 1040-SR, Schedule 1, line 8)
The exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989 (Form 8815)
The exclusion of employer-provided adoption benefits (Form 8839)
Tuition and fees deduction (Form 8917)
The deduction of up to $25,000 for active participation in a passive rental real estate activity (Form 8582)

If you have already filed your 2020 Form 1040 or 1040-SR, you should not file an amended return at this time. The IRS will issue additional guidance as soon as possible.

The instructions for Schedule 1 (Form 1040), line 7, Unemployment Compensation, are updated to read as follows.

Line 7

Unemployment Compensation

You should receive a Form 1099-G showing in box 1 the total unemployment compensation paid to you in 2020. Report this amount on line 7.

Caution. If the amount reported in box 1 of your Form(s) 1099-G is incorrect, report on line 7 only the actual amount of unemployment compensation paid to you in 2020.

Caution. When figuring any of the following deductions or exclusions, include the full amount of your unemployment benefits reported on Schedule 1, line 7 (unreduced by any exclusion amount): taxable social security benefits, IRA deduction, student loan interest deduction, nontaxable amount of Olympic or Paralympic medals and USOC prize money, the exclusion of interest from Series EE and I U.S. Savings Bonds issued after 1989, the exclusion of employer-provided adoption benefits, the tuition and fees deduction, and the deduction of up to $25,000 for active participation in a passive rental real estate activity. See the specific form or instructions for more information. If you file Form 1040-NR, you aren’t eligible for all of these deductions. See the Instructions for Form 1040-NR for details.

Note. If your modified adjusted 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 to you in 2020. For married taxpayers, you and your spouse can each exclude up to $10,200 of unemployment compensation. For example, you file jointly with your spouse and your modified AGI is less than $150,000. You were paid $20,000 of unemployment compensation and your spouse was paid $5,000. Report the $25,000 (the total amount of your unemployment compensation) on line 7 and report $15,200 on line 8 as a negative amount (in parentheses). The $15,200 excluded from income is all of the $5,000 unemployment compensation paid to your spouse, plus $10,200 of the $20,000 paid to you. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation. Use the Unemployment Compensation Exclusion Worksheet to figure your modified AGI and the amount to exclude. If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.

If you made contributions to a governmental unemployment compensation program or to a governmental paid family leave program and you aren’t itemizing deductions, reduce the amount you report on line 7 by those contributions. If you are itemizing deductions, see the instructions on Form 1099-G.

Caution. Your state may issue separate Forms 1099-G for unemployment compensation received from the state and the additional $600 a week federal unemployment compensation related to coronavirus relief. Include all unemployment compensation received on line 7.

If you received an overpayment of unemployment compensation in 2020 and you repaid any of it in 2020, subtract the amount you repaid from the total amount you received. Enter the result on line 7. Also enter “Repaid” and the amount you repaid on the dotted line next to line 7. If, in 2020, you repaid more than $3,000 of unemployment compensation that you included in gross income in an earlier year, see Repayments in Pub. 525 for details on how to report the payment.

Tip. If you received unemployment compensation in 2020, your state may issue an electronic Form 1099-G instead of it being mailed to you. Check your state’s unemployment compensation website for more information.

Unemployment Compensation Exclusion Worksheet – Schedule 1, Line 8

If you are filing Form 1040 or 1040-SR, enter the total of lines 1 through 7 of Form 1040 or 1040-SR. If you are filing Form 1040-NR, enter the total of lines 1a, 1b, and lines 2 through 7.
Enter the amount from Schedule 1, lines 1 through 6. Don’t include any amount of unemployment compensation from Schedule 1, line 7 on this line.
Use the line 8 instructions to determine the amount to include on Schedule 1, line 8, and enter here. Do not reduce this amount by the amount of unemployment compensation you may be able to exclude.
Add lines 1, 2, and 3.
If you are filing Form 1040 or 1040-SR, enter the amount from line 10c. If you are filing Form 1040-NR, enter the amount from line 10d.
Subtract line 5 from line 4. This is your modified adjusted gross income.
Is the amount on line 6 $150,000 or more?
a. [ ] Yes. Stop You can’t exclude any of your employment compensation
b. [ ] No. Go to line 8
Enter the amount of unemployment compensation paid to you in 2020. Don’t enter more than $10,200.
If married filing jointly, enter the amount of unemployment compensation paid to your spouse in 2020. Don’t enter more than $10,200. If you are filing Form 1040-NR, enter -0- .
Add lines 8 and 9 and enter the amount here. This is the amount of unemployment compensation excluded from your income.
Subtract line 10 from line 3 and enter the amount on Schedule 1, line 8. If the result is less than zero, enter it in parentheses. On the dotted line next to Schedule 1, line 8, enter “UCE” and show the amount of unemployment compensation exclusion in parentheses on the dotted line. Complete the rest of Schedule 1 and Form 1040, 1040-SR, or 1040-NR.

March 29, 2021 0

IRS is issuing third round of Economic Impact Payments

The IRS started issuing the third round of Economic Impact Payments. No action is needed by most taxpayers. The IRS will issue payments automatically by direct deposit and through the mail as a check or debit card.

Many people will receive the third payment the same way they received the first and second Economic Impact Payments. Because these payments are automatic for most eligible people, there’s no need to contact financial institutions or the IRS. People can check the Get My Payment tool on IRS.gov for status of their third stimulus payment.

Highlights of the third Economic Impact Payments
In general, most people will get $1,400 for themselves and $1,400 for each qualifying dependent claimed on their tax return. As with the first two Economic Impact Payments, most people will receive their third payment without having to take any action.

The third Economic Impact Payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019. This includes anyone who successfully registered at IRS.gov using the agency’s Non-Filers tool last year or submitted a simplified tax return. If the IRS received and processed a taxpayer’s 2020 return before issuing someone’s third Economic Impact Payment, the amount is based on the 2020 return.

Those who received the first or second payment but don’t receive a payment by direct deposit will generally receive a check or a prepaid debit card, referred to as an EIP Card. The IRS will not add the third payment to an existing EIP card that people received for the first or second round of stimulus payments.

Under the new law, the IRS can’t apply the third Economic Impact Payment to past-due federal debts or back taxes.

Who is eligible for the third Economic Impact Payment
Generally, U.S. citizens or U.S. resident aliens are eligible for the full amount of the third Economic Impact Payment if they and their spouse, if they’re filing jointly, are not a dependent of another taxpayer and have a valid Social Security number and their adjusted gross income on their tax return does not exceed:

$150,000, if married and filing a joint return or if filing as a qualifying widow or widower.
$112,500, if filing as head of household.
$75,000 for eligible individuals using any other filing statuses, such as single filers and married people filing separate returns.

The payments phase out — or reduce — above those AGI amounts. This means taxpayers will not receive a third payment if their AGI exceeds:

$160,000, if married and filing a joint return or if filing as a qualifying widow or widower.
$120,000, if filing as head of household.
$80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns.

More details about the third round of Economic Impact Payments are available on IRS.gov.

Share this tip on social media — #IRSTaxTip: IRS is issuing third round of Economic Impact Payments. https://go.usa.gov/xsMfN

March 23, 2021 0

NEW YORK STATE Income Tax Filing Due Date

The Commissioner of the New York State Department of Taxation and Finance has extended the due date for personal income tax returns, and related tax payments, for the 2020 tax year from April 15, 2021, to May 17, 2021.

Accordingly, 2020 personal income tax returns originally due on April 15, 2021, and related payments of tax, will not be subject to penalties or interest if filed and paid by May 17, 2021.

Note: This relief does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021. These payments are still due on April 15, 2021.

To view the guidance issued, visit N-21-1, Announcement Regarding Extension of the Deadline to File Personal Income Tax Returns for Tax Year 2020.

March 19, 2021 0

Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline

But be aware only Federal gives you an extended deadline, not every state follows.

WASHINGTON — The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days.

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig. “Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until Oct. 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.

Winter storm disaster relief for Louisiana, Oklahoma and Texas

Earlier this year, following the disaster declarations issued by the Federal Emergency Management Agency (FEMA), the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. This extension to May 17 does not affect the June deadline.

For more information about this disaster relief, visit the disaster relief page on IRS.gov.

March 17, 2021 0

Things #taxpayers should know when choosing between #standard and #itemized deductions

Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.
Most taxpayers have a choice of either taking the standard deduction or itemizing their deductions. The standard deduction may be quicker and easier, but, itemizing deductions may lower taxes more, in some situations. It’s important for all taxpayers to look into which deduction method best fits them.

New this year
Following tax law changes, cash donations of up to $300 made by December 31, 2020 are deductible without having to itemize when people file a 2020 tax return.

Here are some details about the two methods to help people decide deduction to take:

Standard deduction
The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Taxpayers benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions. They can use the Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount their standard deduction and if they should itemize their deductions.

Itemized deductions
Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they not allowed to use the standard deduction.

Tax software can guide taxpayers through the process of itemizing their deductions. Taxpayers who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.

A taxpayer may benefit by itemizing deductions if any of following apply to their tax situation, they:

Had large uninsured medical and dental expenses
Paid interest and taxes on their home
Had large uninsured casualty or theft losses
Made large contributions to qualified charities

Individual itemized deductions may be limited. Schedule A, Form 1040, Itemized Deductions can help determine what limitations may apply.

More information:
Publication 501, Dependents, Standard Deduction, and Filing Information
Topic No. 551, Standard Deduction

Share this tip on social media — #IRSTaxTip: Things taxpayers should know when choosing between standard and itemized deductions. https://go.usa.gov/xsjFR

February 22, 2021 0