Unemployment benefits: A record number of Americans applied for unemployment compensation in 2020 due to the COVID-19 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.
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 automatically re-compute any credits and deductions claimed on the original return. Click here to see the official IRS newswire with this announcement.