IRS to recalculate taxes on unemployment benefits; refunds to start in May

WASHINGTON – To help taxpayers, the Internal Revenue Service announced today that it will take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.

 

The legislation, signed on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxes.

 

Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund. The first refunds are expected to be made in May and will continue into the summer.

 

For those taxpayers who already have filed and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.

 

For those who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the up to $10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns.

 

There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.

 

For example, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income.

 

These taxpayers may want to review their state tax returns as well.

 

According to the Bureau of Labor Statistics, over 23 million U.S. workers nationwide filed for unemployment last year. For the first time, some self-employed workers qualified for unemployed benefits as well. The IRS is working to determine how many workers affected by the tax change already have filed their tax returns.

 

The new IRS guidance also includes details for those eligible taxpayers who have not yet filed.

 

The IRS has worked with the tax return preparation software industry to reflect these updates so people who choose to file electronically simply need to respond to the related questions when electronically preparing their tax returns. See New Exclusion of up to $10,200 of Unemployment Compensation for information and examples. For others, instructions and an updated worksheet about the exclusion were available in March and posted to IRS.gov/Form 1040. These instructions can assist taxpayers who have not yet filed to prepare returns correctly.

IRS News: IRS projects stimulus payments to non-filer Social Security and other federal beneficiaries will be disbursed later this week

WASHINGTON – As work continues on issuing millions of Economic Impact Payments to Americans, the Internal Revenue Service and Treasury Department announced today that they anticipate payments will begin to be issued this weekend to Social Security recipients and other federal beneficiaries who do not normally file a tax return, with the projection that the majority of these payments would be sent electronically and received on April 7.

 

After receiving data from the Social Security Administration on Thursday, March 25, the IRS began the multi-step process to review, validate, and test tens of millions of records to ensure eligibility and proper calculation of Economic Impact Payments. If no additional issues arise, the IRS currently expects to complete that work and to begin processing these payment files at the end of this week. Because the majority of these payments will be disbursed electronically – through direct deposits and payments to existing Direct Express cards – they would be received on the official payment date of April 7. 

 

Many federal beneficiaries who filed 2019 or 2020 returns or used the Non-Filers tool last year were issued Economic Impact Payments, if eligible, during the last three weeks. The update today applies to Social Security, Supplemental Security Income (SSI), and Railroad Retirement Board (RRB) beneficiaries who did not file a 2019 or 2020 tax return or did not use the Non-Filers tool.

 

“IRS employees are working tirelessly to once again deliver Economic Impact Payments to the nation’s taxpayers as quickly as possible,” said IRS Commissioner Chuck Rettig. “Our teams immediately began processing data we received last week for federal benefit recipients. We know how important these payments are, and we are doing everything we can to make these payments as fast as possible to these important individuals.”

 

The Get My Payment tool is updated for eligible individuals once their payment is processed. The IRS notes that the Get My Payment tool on IRS.gov will not be updated until the weekend of April 3-4 with information for federal beneficiaries expecting payments next week.

 

The IRS continues to review data received for Veterans Affairs (VA) benefit recipients and expects to determine a payment date and provide more details soon. Currently, the IRS estimates that Economic Impact Payments for VA beneficiaries who do not regularly file tax returns could be disbursed by mid-April. VA beneficiary payment information will be available in the Get My Payment tool at a future date.

 

Federal benefit payments automatic; no action for most

 

Most Social Security retirement and disability beneficiaries, railroad retirees and recipients of veterans benefits who are eligible for an Economic Impact Payment do not need to take any action to receive a payment. These payments will be automatic. Like the previous Economic Impact Payments, Social Security and other federal beneficiaries will generally receive this third payment the same way that they receive their regular benefits.

 

Some federal benefit recipients may need to file a 2020 tax return, even if they don't usually file, to provide information the IRS needs to send payments for any qualified dependent. Eligible individuals in this group should file a 2020 tax return to be considered for an additional payment for their qualified dependent as quickly as possible.

Some federal benefit recipients already have received an Economic Impact Payment

 

The IRS emphasizes that federal benefit recipients in these groups who file tax returns already started to receive Economic Impact Payments earlier this month, along with other taxpayers.

 

Because some federal benefit recipients do not file tax returns, the IRS did not have in its tax systems the current information needed to generate the Economic Impact Payments. Last year, the IRS took the unprecedented step to receive and review data from other federal agencies and use that data to deliver payments automatically to these recipients.  This action – which had never occurred in previous stimulus efforts – minimized risk and burdens for the American public during the pandemic. Due to regular changes in the federal benefits population, the IRS needed to receive updated information this month from other government agencies. With these critical updates, eligible federal benefit recipients who don’t normally file an income tax return will get a payment automatically in the next few weeks.

 

Making these automatic payments to federal beneficiaries involves a complex, multi-step process to handle recipient data from the other agencies. For the first round of Economic Impact Payments last year, recipients in these groups received payments within four to six weeks after the CARES Act was signed into law. For the American Rescue Plan signed March 11, the IRS projects that it is on track to deliver Economic Impact Payments to federal beneficiaries at the same or faster speed.

 

More details on this third round of Economic Impact Payments and federal benefit recipients will be available soon on IRS.gov.

 

 

Other work continues on Economic Impact Payments; watch mail for checks, EIP Cards

 

In addition to work for federal benefit recipients, the IRS also continues to prepare and deliver additional Economic Impact Payments for other eligible individuals – as well as deliver tax refunds.

 

For those receiving payments in the mail, the IRS urges these taxpayers to continue to watch their mail for these payments, which could include a paper Treasury check or a special prepaid debit card called an EIP Card.

 

Taxpayers should note that the form of payment for the third Economic Impact Payment, including for some Social Security and other federal beneficiaries, may be different than earlier stimulus payments. More people are receiving direct deposits, while those receiving payments in the mail may receive either a paper check or an EIP Card – which may be different than how they received their previous Economic Impact Payments.

Special reminder for those who don't normally file a tax return

People who don't normally file a tax return and don't receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor, and others. For those eligible individuals who didn't get a first or second Economic Impact Payment or got less than the full amounts, they may be eligible for the 2020 Recovery Rebate Credit, but they’ll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren't required to file a tax return.

Free tax return preparation is available for qualifying people.

The IRS reminds taxpayers that the income levels in this new round of Economic Impact Payments have changed. This means that some people won't be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people with Adjusted Gross Incomes above these levels are ineligible for a payment.

 

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.

 

IRS News: IRS warns university students and staff of impersonation email scam

 WASHINGTON – The Internal Revenue Service today warned of an ongoing IRS-impersonation scam that appears to primarily target educational institutions, including students and staff who have “.edu” email addresses.

The IRS’ phishing@irs.gov has received complaints about the impersonation scam in recent weeks from people with email addresses ending in “.edu.” The phishing emails appear to target university and college students from both public and private, profit and non-profit institutions.

Taxpayers who believe they have a pending refund can easily check on its status at “Where’s My Refund?” on IRS.gov. 

The suspect emails display the IRS logo and use various subject lines such as “Tax Refund Payment” or “Recalculation of your tax refund payment.” It asks people to click a link and submit a form to claim their refund.

The phishing website requests taxpayers provide their:

• Social Security Number
• First Name
• Last Name
• Date of Birth
• Prior Year Annual Gross Income (AGI)
• Driver's License Number
• Current Address
• City
• State/U.S. Territory
• ZIP Code/Postal Code
• Electronic Filing PIN

People who receive this scam email should not click on the link in the email, but they can report it to the IRS. For security reasons, save the email using “save as” and then send that attachment to phishing@irs.gov or forward the email as an attachment to phishing@irs.gov. The Treasury Inspector General for Tax Administration (TIGTA) and IRS Criminal Investigation have been notified.

Taxpayers who believe they may have provided identity thieves with this information should consider immediately obtaining an Identity Protection PIN. This is a voluntary opt-in program. An IP PIN is a six-digit number that helps prevent identity thieves from filing fraudulent tax returns in the victim’s name. 

Taxpayers who attempt to e-file their tax return and find it rejected because a return with their SSN already has been filed should file a Form 14039, Identity Theft Affidavit, to report themselves as a possible identity theft victim. See Identity Theft Central to learn about the signs of identity theft and actions to take. 

Questions and Answers about EIP3

  The IRS has released an FAQ page for EIP3, please visit it here

New State of California Franchise Tax Board automated clearing house (ACH) company entry description for Golden State Stimulus Payments

 Please be advised that the State of California Franchise Tax Board will be processing Golden State Stimulus Payments (GSSP), authorized by Section 8150 of the Welfare and Institutions Code, as added by Senate Bill 88 (Stats. 2021, Ch. 8) and amended by Assembly Bill 88 (Stats. 2021, Ch. 12), using a new company entry description for ACH payments. GSSP will use the company discretionary data field description “XX FTB GSSTIMULUS XX”, as described below. The ACH transaction amount will be either $600 or $1200.

Effective immediately, financial institutions should be prepared to begin receiving GSSP with the new company entry descriptions. This notice is being provided to allow financial institutions to make any processing or system preparations necessary to receive these payments.

In accordance with the National Association of Automated Clearing House Association (“NACHA”) operating rules, State of California Franchise Tax Board payments will be issued with the following descriptors:

The “XX” indicator in positions 21-22 & 39-40 of the “Company Discretionary Data” field identifies GSSP as exempt from all garnishments except garnishments for child support enforcement. The following table maps certain field values found in the ACH Company/Batch Header (“5”) record of GSSP processed by the State Controller’s Office.

Modified Adjusted Income or MAGI

 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) 

For more information please visit the IRS FAQ

Not calculating this correctly will result is an 8917 reject (If Form 8917 is present in the return, then 'TotalIncomeAmt' must be equal to Form 1040, 'TotalIncomeAmt'.)- the AGI on the 8917 has to match AGI on 1040

Federal Form Updates

 This morning, we released federal form updates relating to both the unemployment exclusion and the 5/17 due date. 

Important: The IRS has stated that there is no need to file an amended return (Form 1040-X) to figure the amount of unemployment compensation to exclude. The IRS will re-calculate and send the difference.

For states who have already declared their intentions on these issues, we are targeting a 3/29 release for those state forms. Please refer to our "Latest Impacts" landing page or to state government websites for individual state impacts.

Direct Debit Payment Dates: Please be aware that the IRS still has not changed their business rule for Direct Debit payment dates, and cannot currently accept Direct Debit payment dates that are after 4/15/21 (even though our software now has been updated to allow dates between 4/15 and 5/17). Until the IRS updates their rule for this, any returns with Direct Debit payment dates after 5/15 will be rejected by the IRS.

American Rescue Plan Act of 2021 Unemployment Compensation Update

It’s important to know when the Refunds Today software will be updated based on IRS guidance due to the American Rescue Plan Act of 2021’s changes to unemployment taxability.

By March 29, 2021, we will have the software updated to ensure these calculations are based on IRS e-filing guidance and are auto-calculated.

The majority of tax returns filed using Refunds Today are e-filed rather than paper filings. We want you to be aware the recently released IRS guidance for handling unemployment compensations due to the American Rescue Plan Act of 2021 changes are for paper filings, not those who choose to e-file.

We have chosen not to provide you with workarounds and manual calculations to input the pertinent data into your tax preparation filing software. These workarounds would be drawn from recently released IRS guidance for paper filings and possibly cause rework at a later date.

At Wolters Kluwer, we are here to support you during busy season and especially during the peak of your compression period. We believe taking the time to act deliberately and ensure accuracy is the best way to support you during busy season. We want you to be right the first time, not waste time and lose productivity because a workaround didn’t fully capture the information you need in current and future years.

Make sure to check the Latest Impacts to 2021 Tax Season Filing Dates blog post for more information on State and Federal filing changes. 

Wolters Kluwer – when you have to be right.

IRS News: Modernized e-File (MeF) Extended Maintenance Window

MeF Production and Assurance Testing System (ATS) environments will be unavailable due to maintenance from 12:01 a.m. through 1:00 p.m. Eastern time on Sunday, March 21, 2021. Please refrain from accessing the MeF Systems during this maintenance. Please monitor the MeF Operational Status page  for any future updates. We apologize for any inconvenience this may cause.

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

 

IR-2021-59, March 17, 2021

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.

IRS News: MeF Extended Maintenance Window Sunday March 7

 MeF Production and Assurance Testing System (ATS) environments will be unavailable due to maintenance from 12:01 a.m. Eastern through 10:00 a.m. Eastern on Sunday, March 07, 2021.

Please refrain from accessing the MeF Systems during this maintenance.

Please monitor the MeF Operational Status page  for any future updates.

We apologize for any inconvenience this may cause.