Did You Know…?

Posted on March 16, 2021 by The Weekly Commentary

American Rescue Plan Act of 2021
The stimulus signed into law last week includes many items that could impact people’s tax planning for 2021, but let’s focus on two of the key topics that have an impact on the 2020 tax return.

Unemployment:

Extends the $300 unemployment weekly supplemental benefit through Sept. 6, 2021
Makes the first $10,200 of unemployment benefits tax-free for people with incomes of less than $150,000 for 2020 only. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200.
- The exclusion should be reported separately from your unemployment compensation – the IRS has updated instructions and the Unemployment Compensation Exclusion Worksheet
- The IRS strongly urges taxpayers to not file amended returns related to the new legislative provisions or take other unnecessary steps at this time
- For those who haven’t filed yet, the IRS will provide a worksheet for paper filers and work with software industry to update current tax software so that taxpayers can determine how to report their unemployment income on their 2020 tax return.

Stimulus Payments:

Payments are based on 2019, or 2020 tax returns if they have already been filed.
Individuals earning up to $75,000 in adjusted gross income (AGI) will get direct payments of $1,400
Partial payments are available only to individuals making up to $80,000 AGI and couples earning $160,000 AGI
Married couples earning up to $150,000 in adjusted gross income will get $2,800
Eligible recipients also will receive $1,400 for each of their dependents
- Taxpayers who have an increase in adjusted gross income in 2020 as compared to 2019 may want to hold off filing 2020 returns until the filing deadline. This will maximize the amount of stimulus payments received because their stimulus payment will not be potentially reduced by the higher 2020 adjusted gross income.

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