IRS to Recalculate Taxes on Unemployment

Taxpayers who earned less than $150,000 in modified adjusted gross may exclude compensation up to $20,400 if filing jointly and $10,200 for all other eligible taxpayers. 

For those taxpayers who already have filed and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct amount of unemployment compensation and tax. The first refunds are expected to be made in May, 2021 and will continue into the summer.

There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.

For example, the IRS can adjust returns for those taxpayers who claimed the (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income. These taxpayers may want to review their state as well.