A new stimulus bill is passing through congress and looks to be on the President’s desk imminently. The bill is unique for many reasons, one of which is that it proposes to change the tax current law during the middle of tax season.
Stimulus Bill Changes Rules on Unemployment Comp Taxation
The stimulus bill makes the first $10,200 of unemployment compensation for single tax payers, and $20,400 for married couples exempt from tax. The exemption only applies to single taxpayers who made under $75,000 and married filing joint taxpayers who made under $150,000. There is no phase out as the bill is currently written, so one dollar above those amounts will make the entire exemption disappear. For a family that made under $150,000 but is in the 22% tax bracket and received 20,400 of unemployment, the change will save them $4,488 on their 2020 return.
Since the change is coming during tax season, there are taxpayers who have already filed tax returns who stand to benefit. In order to take advantage of the change, these taxpayers will need to amend their tax returns.
The stimulus bill is just now in the final stages of being passed. It’s going to take the IRS time to review the law and update their systems and forms to take the change into account. The best course of action for now is patience. For those who received unemployment but haven’t filed yet, it makes sense to wait.
Stay tuned for some of the tax law changes that the stimulus bill puts forward that will affect 2021 tax returns.
