The American Rescue Plan has retroactive tax benefits

May 25, 2021

The IRS reminds taxpayers who still haven’t filed, that several provisions of the American Rescue Plan affect their 2020 tax returns.  

One provision excludes up to $10,200 in unemployment compensation from income. Another provision benefits many people who purchased subsidized health coverage through either federal or state Health Insurance Marketplaces. The law also includes a third round of Economic Impact Payments, currently going out to eligible Americans, that are generally equal to $1,400 per person for most people. The IRS will automatically provide these benefits to eligible filers.

Most taxpayers who have already filed their 2020 returns should not file amended returns, file refund claims, or contact the IRS about obtaining these newly enacted tax benefits.  These actions will not speed up a future refund. In fact, they could even slow down an existing refund claim.

Some unemployment compensation not taxed for many
For tax year 2020 only, the first $10,200 of unemployment compensation is not taxable for most households. This tax benefit is available only to those whose modified adjusted gross income is below $150,000 during 2020. The same income cap applies to all filing statuses.

This means that those eligible who haven’t yet filed a 2020 return can exclude the first $10,200 of total unemployment compensation received from their income and pay tax only on the difference. For couples, the $10,200 exclusion applies to each spouse. Taxpayers can visit IRS.gov for details.

For any eligible taxpayer who has already filed a tax return and reported their total unemployment compensation as income, the IRS is automatically adjusting their return and providing them this tax benefit. Refunds, based on this adjustment, are being issued in May and will continue through the summer. Refund amounts will vary and not all adjustments will result in a refund.

Repayment of excess advance premium tax credit suspended
Taxpayers who purchased health insurance through a federal or state Health Insurance Marketplace for insurance in 2020 don’t need to repay their 2020 excess advance payments of the premium tax credit and will need to attach Form 8962, Premium Tax Credit, when they file their 2020 return only to claim an additional credit. They may use Form 8962 to figure the amount of the premium tax credit  they qualify for based on their 2020 tax information and reconcile it with any advance premium tax credit that was paid for them through the Marketplace. If the PTC based on their 2020 tax information is more than the APTC, they can claim a net premium tax credit on Form 8962 and must file Form 8962 when they file their 2020 tax return.

However, if the APTC was more than their allowable PTC based on their 2020 tax information, known as the excess APTC, the new law suspends the requirement to repay excess APTC for 2020. This means that taxpayers with excess APTC for 2020 do not need to report the excess APTC or file Form 8962.

Taxpayers who have already filed should not file an amended tax return. The IRS will automatically reduce the repayment amount to zero for anyone who already reported excess APTC for 2020. In addition, the agency will automatically reimburse anyone who has already repaid their 2020 excess APTC when they filed.

You may contact Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other tax matter.