 Internal Revenue Service IRS Tax News. IRS completes automatic corrections of tax year 2020 accounts related to unemployment, compensation, exclusion, 12 million refunds issued. Hey, wait a second here. Wasn't that unemployment exclusion thing designed to get money out fast for people in the middle of a pandemic? I mean, like the pandemic's over now, man. Oh, I see, Phil. The government anticipated the recession caused by their massive spending. And so like, they intentionally made the payments take a super long time, so they would help people in the middle of the recession they caused. Honestly, is there any way we can get the government to stop quote helping us end quote? I mean, it always seems to make us worse off in the long run. Sure, it'll clean you out. Leave your hollow inside. I mean, am I wrong? Am I wrong? Am I wrong? No, you're not wrong. Am I wrong? You're not wrong, Walter. You're just an asshole. Okay, then. Maybe we should shift our priorities to just having them like stop spending so much dang money. Honestly, like trying to stop the government from spending money is like trying to stop Hunter Biden from going on a shopping spree. Well, visiting the local crack dealer. Actually, those two things might be related now that I think about it. Anyways, whatever. I are 2023 dash 02 January 6 2023 Washington. The internal revenue service recently completed the final corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation they received in 2020. So let me see if I can give a recap according to my recollection of what has happened with regards to unemployment in tax year 2020, given the fact that it's been so long that people have probably forgot about it at this point in time. So in 2020, they made an adjustment to the unemployment compensation tax ability. In general, the general rule is if you get unemployment, it's usually going to be taxable income. So you still have to include it on income on the tax return income is bad for taxes because that will increase the likelihood that you're going to be paying taxes in 2020 due to due to the pandemic and everything that was going on. Then they wanted to get more money in people's hands. One way they thought they could do that would be to say the unemployment compensation is not going to be something that they're going to include as a taxable line item. And therefore you wouldn't have to pay taxes on it if that was indeed the case. The problem, however, was that they did that very late in the game. So many people had already received their 1099s from the states and whatnot about the unemployment compensation and possibly already filed their tax return by that point in time. So then the question is going to be, well, if I already have the information and it looks like I'm supposed to include the income because I got this form that would indicate that I normally would and it always has been taxable in the past. But now they changed the law and a lot of people might not pick that up and it was changed quite late. So it's not really people's fault if they didn't know about the law that they didn't report it properly on the tax return. And if they included it in income, they would have overstated their income and paid more tax most likely than they otherwise would have. So then the question is, well, what do you do about that? Are you going to file a 1040x an amended return in order to fix it? Filing an amended return is typically a tedious process, especially before they had the electronic filing of it. So it's kind of a burdensome thing to do for people generally to have to file it. So I think that's the reason the IRS then said, well, we're just going to fix it on our end. So if we see we're going to file the tax returns, they're going to process the tax returns and anybody that claimed the unemployment compensation, they're going to try to remove the unemployment compensation and then issue a refund based on the adjustment to the taxes. Now that is a fairly easy process you would expect for many taxpayers if they have a simple tax return. However, we know that the income will also affect the adjusted gross income, which affects all the phase outs that affect potential credits and whatnot that are dependent on the income. So it can actually be quite complex when you reduce and take out the unemployment to many of these other kind of credits like the earned income credit is based on the level of income and can vary greatly depending on income levels and other credits have these phase outs as well. So some of those become more complex. So the IRS, again, tried to handle it themselves to do it, but it obviously took forever to do and now we're still kind of dealing with it at the tail end here with you would think the more complex returns that they're trying to finalize to get this done with. So given that the American Rescue Plan Act of 2021 became law in March 2021 excluded up to 10,200 in 2020 unemployment compensation. There's a link to that here from taxable income calculations up to 10,200 for each spouse if married filing joint. So the exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000. So to ease the burden on taxpayers, the IRS took steps to review form 1040 and 1040 SR that were filed prior to the law's enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. So the IRS said, hey, look, in essence, this is my interpretation. We're going to try to take care of it ourselves on our end and you don't have to file an amended return because we're going to do it basically was their the general idea. So the IRS determined the correct taxable amount of unemployment compensation and tax. Some taxpayers received refunds while others have the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the correction. Taxpayers should keep that letter with their tax records. Now the other problem with this, of course, is that if the IRS then adjusted your tax return and then you try to file the tax return or go to your tax preparer. They usually start off by rolling over your prior year numbers into the current year tax return. And if there are any rollovers like applied payments or something like that or any other kind of thing that's going to roll over from one year to the other, that could be changed now given the fact that there's a change to the taxes. So you need to make sure that you inform your tax preparer or are understanding the change when you file your tax return for the current year. So the IRS corrected approximately 14 million returns. This resulted in nearly 12 million refunds, totally 14.8 billion, with an average refund of $1,232. Now, again, these numbers are a little deceiving the way they say this because an average refund of $1,232 kind of sounds like everybody got an average refund of that amount. And again, I think that's kind of the intention of the IRS here because they're trying to say they're trying to kind of brag about it seems to me about sending out money, right? They're trying to say, look, the IRS is giving out money during the time period. And so they want to be able to say, look, we gave out in order to help people out 12 million returns, nearly 12 million refunds. But obviously those refunds aren't going to everybody. They're only going to people who had unemployment income and to the people who had unemployment income and then included it in income so that the IRS had to correct it. So it's not like this is a stimulus check that they kind of just sent out to everyone. You know, it's only going to be people that had the unemployment and then they had to file their return. And those are the people that are impacted by it. So you wouldn't expect a refund unless you're in that category is what I'm trying to say. So many of the adjustment adjustments include corrections to the earned income tax credit recovery rebate credit. So notice these are the this is the problem. So you would think it would be a pretty easy thing to just say, I will just take out that income. And then you would think if it was just a flat tax, it wouldn't be a problem. You're like, OK, well, now you're just going to pay, you know, want some percent less tax on that. But no, because it's a progressive tax system. So now you got funny. You got different tax rates and that there's a there's a change to the incomes, which could affect the earned income tax credit, which is the big one. The recovery rebate credit, which is linked to the stimulus payments, additional child tax credit, American opportunity tax credit, the premium tax credit, advanced premium tax credit. So you can see these lower income tax returns are actually getting fairly complex, you know, with all these these credits are not the easiest things to calculate. You kind of need software to do it. And even the IRS took quite some time to make that you would think fairly simple adjustment. So if a taxpayer is eligible for the unemployment compensation exclusion and their account was not corrected by the IRS, they may need to file an amended 2020 tax return to claim the exclusion and any applicable non refundable or refundable credits impacted by the exclusion. So there's a link to that here. So basically the IRS was saying, for most people, you wouldn't need to file an amended return because the IRS is going to handle it on their side. And then they had some exceptions to that general rule. Now it's all played out at this point. So hopefully they sent out the rest of these payments. And if you still haven't received a payment and you had unemployment that was included and they either didn't give you a payment or they did it wrong. What you would like to do ideally is actually take your tax software and and pull out the unemployment income to see what you come up with on your side as as your taxable amount without that amount included. And then see if the government gives you that as the difference in terms of a refund. Do they come to the same conclusion? If they do not, then you might still need to file an amended return. If it would be beneficial, if you don't get the payment at all, then you might still need to file the amended return. So taxpayers should not file an amended return if they previously filed one claiming the exclusion. For more information about this, including eligibility requirements, taxpayers should read the 2020 unemployment compensation exclusion frequently asked questions. There's a link to that here. It's on IRS.gov. If they do not amend tax year 2020 forms 1040 1040 SR taxpayers can file form 1040 X amended US individual income tax return electronically with tax filing software. So that's kind of the new thing. That's fairly new. It's it's crazy that that's a new thing that you can actually file an amended return. It used to be not too long ago that you had to file that with a paper return, which is kind of problematic, especially given the fact that the irises totally was all backed up because of their social distance. In rules and all the changes to the tax code that we're trying to handle. Well, well, not having people in the office because of social distancing rules and whatnot. So that that at least makes it a little easier. You could file that return, although you do typically would like to have software to help you to file the 1040 X if you need to do that. So taxpayers can view their 2020 tax records in the online account. There's a link to that here or request a 2020 tax account transcript be mailed to them. So if you think you're in this group with this unemployment thing, then and you and you haven't received the change, meaning you had unemployment compensation for 2020. You put it on the tax return for 2020 and possibly you didn't need to because the IRS is saying that it should be excluded from income. And then if you didn't get an adjustment from the IRS, then that's when you might want to check your online account and hopefully maybe that that can show you any changes that the IRS made or whatnot. And then you can decide from there what to do, such as possibly filing a form 1040 X and amended return. Remember that if you didn't have any unemployment compensation or you properly didn't record it as income because you filed after the point where you knew about the change to the law. And so you did it, you did it right, then you're then you're not going to get another refund or anything like that. That's it's only going to be for those people that didn't get it, get it right the first time do not impart not to them their own fault, but because the tax law was changed kind of late and so on. And that's who it's applicable to. Okay, that's my explanation of it. So there's links to all that stuff here. There'll be a link to this in the description.