Amendments Needed due to American Rescue Plan

Unemployment and healthcare credits

The recent passage of the American Rescue Plan made two significant, retroactive changes to the 2020 tax returns that we are currently filing.

First, the law exempts unemployment compensation of up to $10,200 per spouse so long as the total income on the tax return does not exceed $150,000 when the unemployment compensation is included in the total. The second provision exempts any payback of healthcare premium tax credits that one received during the 2020 tax year.

For those that have already filed the returns with healthcare credit paybacks, the IRS has not come up with a correction as of March 23, 2021, the date that we have posted this. They have specifically stated that they do not want an amended return until further guidance is issued.

Unemployment compensation is a bit trickier. The IRS has announced that they will handle the processing of amended returns and send the deposit or check. However, there are many states that tax unemployment compensation that have not decided if they will follow the Federal changes, But even if the state does not tax unemployment compensation, this presents another problem. Most states compute a nonresidents tax liability based on a percentage of the total income that the individual earned all year (everywhere income). If the everywhere income is reduced by the exempt and unemployment compensation, this will skew the ratio of in-state to out-of-state income. So even these states have to decide whether their ratios include unemployment compensation or exempt. Every tax software product has to be retooled and it has to be done in conjunction with the states and how they want to process it.

What we are doing at TravelTax

Those Affected by Unemployment Compensation Changes

For those returns that have already been filed, we have made a list and as of the date of this post are waiting for the individual states to issue guidance as to how to report the data on those returns. Most likely this will require an amended return and we will be notifying the clients affected by this via email. For those returns that have not been filed, we are holding the files until this guidance is issued and then will upload the forms to the client.

Those Affected by Health Insurance Credit Paybacks:

For clients who had to pay back healthcare premium tax credits, we have already identified those returns and will be contacting the client once the IRS issues guidance as to how to handle any amendments that are necessary.

For Both

If the client has both unemployment compensation and a payback of their healthcare premium tax credits, we will be contacting them as the IRS as well as the state revenue agencies issue appropriate guidance.

For now, this is just another example of how Congress should not be waiting to tinker with the tax code after tax season has started. We will just have to wait this out until it’s resolved unfortunately.