The IRS recently announced they will be taking steps to automatically refund money this spring to summer to those who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.
The IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will either be refunded or applied to other outstanding taxes owed.
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.
Lacerte may be utilized to determine whether or not you would like to amend your client's return in order to review additional items that may be impacted including; qualifications for credits and/or adjustments as well as state impact.
Follow these steps to review your return:
- Highlight the existing client file.
- From the Client dropdown menu, select Copy (or Ctrl+C)
- In the copied file, go to Screen 59, Amended Return (1040-X)
- Mark Federal and any applicable states for amendment
- Go to Screen 3, Miscellaneous Info./Direct Deposit
- Mark the box for Apply the American Rescue Plan Act provisions
This will apply the new provisions to the existing file, allowing you to review the return with the changes applied in order to help you decide whether or not an amended return should be filed for your client.
Tax Year 2021 Considerations (Federal/State):
- Making a copy of the client file also allows you to track any changes to 2020 AGI, credit carryovers, and rollover items.
- Tax Planner - any changes that may impact tax planning previously reviewed with your client.
Tax Year 2020 Considerations:
- The amended return created may reveal additional tax changes due to the reduction in income.
- The amended return created would provide a return of record for referencing in the following tax year.
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.
- The amended return created when reviewing the Federal return for any additional changes may also be used to file an amended state return if needed.
IRS to recalculate taxes on unemployment benefits; refunds to start in May: https://www.irs.gov/newsroom/irs-to-recalculate-taxes-on-unemployment-benefits-refunds-to-start-in-m...
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