Tax Update for Unemployment Recipients

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IRS PROVIDES INFORMATION ON 2020 UNEMPLOYMENT BENEFITS

The IRS has provided the following information regarding 2020 unemployment benefits and the 2021 tax filing season:

Unemployment benefits

A record number of Americans applied for unemployment compensation in 2020 due to the pandemic. Anyone who received unemployment benefits will need to report it on their tax returns.

However, the American Rescue Plan, enacted on March 11, 2021, excludes from income up to $10,200 ($20,400 if married filing jointly) of unemployment compensation received in 2020 for taxpayers with modified adjusted gross income under qualifying thresholds. Any amount over $10,200 is still taxable for each person. To determine if payments received for being unemployed are taxable, see the Interactive Tax Assistant on IRS.gov.

For those who have already filed their 2020 tax return and paid taxes on the full amount of unemployment compensation before the law was passed, they should not file an amended return. The IRS will automatically refund money to people who already filed their tax return reporting unemployment compensation.

The IRS will recompute any credits and deductions claimed on the original return. However, if the reduction of income now qualifies a taxpayer for a new credit not claimed on the original return, like the Earned Income Tax Credit (EITC), those taxpayers will need to file an amended tax return, Form 1040x, to claim the new credit. Taxpayers can see if they qualify for the EITC at IRS.gov.

Unemployment benefit recipients should have received a Form 1099-G, Certain Government Payments, from the agency paying the benefits. The form will show the amount of unemployment compensation they received in 2020 in Box 1, and any federal income tax withheld in Box 4.

Some states do not mail Form 1099-Gs. Taxpayers may need to get the electronic version from their state’s website.

Taxpayers who received an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits.

Taxpayers who are unable to obtain a timely, corrected form from their state should still file an accurate tax return, reporting only the income they received. A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid an unexpected federal tax bill for unreported income.

Additionally, if taxpayers are concerned that their personal information has been stolen and they want to protect their identity when filing their federal tax return, they can request an Identity Protection Pin (IP PIN) from the IRS.

Generally, by law, unemployment compensation must be included as income. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in 2020.

If a taxpayer didn’t report income from gig work or unemployment compensation on a return, a corrected return can be filed using Form 1040-X, Amended U.S. Individual Income Tax Return. Form 1040-X can be filed electronically.

Taxpayers who owe but can’t pay in full always have options to seek help through payment plans and other tools from IRS.gov/payments.

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makethemostofyourmembership.gif

IRS PROVIDES INFORMATION ON 2020 UNEMPLOYMENT BENEFITS

Mary:

The IRS has provided the following information regarding 2020 unemployment benefits and the 2021 tax filing season:

Unemployment benefits

A record number of Americans applied for unemployment compensation in 2020 due to the pandemic. Anyone who received unemployment benefits will need to report it on their tax returns.

However, the American Rescue Plan, enacted on March 11, 2021, excludes from income up to $10,200 ($20,400 if married filing jointly) of unemployment compensation received in 2020 for taxpayers with modified adjusted gross income under qualifying thresholds. Any amount over $10,200 is still taxable for each person. To determine if payments received for being unemployed are taxable, see the Interactive Tax Assistant on IRS.gov.

For those who have already filed their 2020 tax return and paid taxes on the full amount of unemployment compensation before the law was passed, they should not file an amended return. The IRS will automatically refund money to people who already filed their tax return reporting unemployment compensation.

The IRS will recompute any credits and deductions claimed on the original return. However, if the reduction of income now qualifies a taxpayer for a new credit not claimed on the original return, like the Earned Income Tax Credit (EITC), those taxpayers will need to file an amended tax return, Form 1040x, to claim the new credit. Taxpayers can see if they qualify for the EITC at IRS.gov.

Unemployment benefit recipients should have received a Form 1099-G, Certain Government Payments, from the agency paying the benefits. The form will show the amount of unemployment compensation they received in 2020 in Box 1, and any federal income tax withheld in Box 4.

Some states do not mail Form 1099-Gs. Taxpayers may need to get the electronic version from their state’s website.

Taxpayers who received an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits.

Taxpayers who are unable to obtain a timely, corrected form from their state should still file an accurate tax return, reporting only the income they received. A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid an unexpected federal tax bill for unreported income.

Additionally, if taxpayers are concerned that their personal information has been stolen and they want to protect their identity when filing their federal tax return, they can request an Identity Protection Pin (IP PIN) from the IRS.

Generally, by law, unemployment compensation must be included as income. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in 2020.

If a taxpayer didn’t report income from gig work or unemployment compensation on a return, a corrected return can be filed using Form 1040-X, Amended U.S. Individual Income Tax Return. Form 1040-X can be filed electronically.

Taxpayers who owe but can’t pay in full always have options to seek help through payment plans and other tools from IRS.gov/payments.

Of course if you have questions or need to file your taxes, contact our office by emailing support@mtaustinandassoc.com

Many Happy Returns!

Give the gift of education

One of the best gifts a parent or family member can give a child is the gift of education. Having a wealth mindset is asking your family to forgo the toys and wrap up a contribution to your child’s 529 Plan. It’s also a tax deduction so everyone wins! You have until December 31st to open an account if you haven’t already.

Many happy returns!

#TaxTip: Six Important Facts to know before deducting a charitable donation

Groups - Adults and Business People
Groups – Adults and Business People

Welcome to Financial Freedom Press! It’s tax season and we will be sharing valuable information directly from the IRS website that will help you in filing your federal tax return. As always, MT Austin and Associates would be honored to provide your individual or small business, non-profit tax preparation services. We offer competitive pricing and personal attention. You can schedule a 15 minute consultation at your convenience by accessing our calendar HERE —> CALENDAR

or email us at austin@mtaustinandassoc.com. Wishing you Many Happy Returns!

Know these Facts Before Deducting a Charitable Donation

If taxpayers gave money or goods to a charity in 2016, they may be able to claim a deduction on their federal tax return. Taxpayers can use the Interactive Tax Assistant tool, Can I Deduct my Charitable Contributions?, to help determine if their charitable contributions are deductible.

Here are some important facts about charitable donations:

  1. Qualified Charities. Taxpayers must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. To check the status of a charity, use the IRS Select Check tool.

  2. Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with a federal tax return.

  3. Benefit in Return. If taxpayers get something in return for their donation, they may have to reduce their deduction. Taxpayers can only deduct the amount that exceeds the fair market value of the benefit received. Examples of benefits include merchandise, meals, tickets to events or other goods and services.

  4. Type of Donation. If taxpayers give property instead of cash, their deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price they would get if the property sold on the open market. If they donate used clothing and household items, those items generally must be in good condition or better. Special rules apply to cars, boats and other types of property donations.

  5. Non-cash Charitable Contributions. File Form 8283, Non-cash Charitable Contributions, for all non-cash gifts totaling more than $500 for the year. Complete section-A for non-cash property contributions worth $5,000 or less. Complete section-B for non-cash property contributions more than $5,000 and include a qualified appraisal to the return. Taxpayers may be able to prepare and e-file their tax return for free using IRS Free File. The type of records they must keep depends on the amount and type of their donation. To learn more about what records to keep, see Publication 526, Charitable Contributions.

  6. Donations of $250 or More. If taxpayers donated cash or goods of $250 or more, they must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether they received any goods or services in exchange for the gift.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

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