A provision in the new $1.9 trillion stimulus bill that allows some unemployment compensation to be excluded from federal taxes is sending accountants and taxpayers scrambling less than a month before the filing deadline.
The American Rescue Plan Act of 2021, which President Biden signed into law Thursday, allows for up to $10,200 in unemployment payments to avoid being federally taxed – it is double that figure for couples filing jointly – for any household making less than $150,000.
The new rule is retroactive to 2020’s tax year, bringing uncertainty for people who have already filed their federal taxes, along with current software tax programs for home computers that now need to be updated.
Mark Winiecki, the tax director at Guthrie, Belczyk & Associates in North Strabane, said they’ve only run into two clients who were impacted by the new rule, but it can be “confusing” to people who accepted unemployment payments last year and are unsure about what to do now. He spent Sunday reading some of the new tax rules in the stimulus and how it will impact filings.
“Most of this wasn’t really surprising. We knew the stimulus was coming,” Winiecki said, adding that they couldn’t make final determinations until the bill actually passed. “It is going to be confusing because who knows how long it will take the software vendors to update that. The IRS is sending the stimulus money and then have to update their systems.”
Winiecki said the initial guidance from the IRS is to not amend tax returns if they’re already filed. Instead, he expects the IRS to make adjustments since the department is aware of how much unemployment compensation the filer received. But those final decisions have yet to be announced.
He added that the provision is only available to households that made less than $150,000 in 2020, regardless if they’re filing as single, married or head of household. Anyone who made above that threshold is ineligible.
There are other minor and rarely used tax provisions in the stimulus, which Winiecki thinks will prompt the IRS to once again delay the filing deadline that is currently set for April 15. While Winiecki has seen nothing official yet, he has heard “rumblings” that the filing date could be pushed back to June 15 to give the IRS and filers more time to make adjustments.
“I personally think it should be. There’s just too many changes,” he said. “We already were two weeks behind on tax season starting and the IRS isn’t even up to date on 2019 yet.”
He pointed to the Payroll Protection Program that is still operating with new guidance coming out as late as last weekend. Democrats on the U.S. House Ways and Means Committee also have been urging the IRS to delay the filing deadline for more than a month.
“I think at the end of the day it will be,” Winiecki said. “I wouldn’t hold me to that, but I think there’s a lot of pressure out there. There’s a lot going on.”