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TaxMama’s® TaxQuips
IRS Unemployment Refunds Alert 

 

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It's TaxQuips time from TaxMama.com® -
Today TaxMama® wants talk to you about the unemployment refund checks the IRS has started to send out.
Yours may be on the way!


You can listen to the podcast here –
or (tomorrow) at TaxMama’s YouTube site


Dear Family,

In today’s TaxQuip, I want to reach taxpayers who prepare your own tax returns. Please share this with anyone else who is affected.

Let’s do a little recap on the current situation:

Long after millions of taxpayers filed their tax returns (American Rescue Act in March 2021), Congress decided to help out shocked taxpayers who learned that the unemployment benefits they received during this pandemic are taxable. Congress decreed that the first $10,200 of all unemployment benefits would not be taxable.

The IRS said they would issue the refunds automatically and asked us all not to file amended returns until after they issued the refunds, as I reported earlier.

So, now the refunds are arriving. Now that tax pros have seen how the IRS made their computations, they noted that many of their clients do need to file amended returns. Why?

Frankly, for the IRS to perform a complete computation on each tax return would be so prohibitive that the refunds would be delayed for months. Instead, they took a short-cut. They multiplied the amount of the unemployment exclusion (up to $10,200 or double that for couples filing jointly in community property states) times the taxpayer’s tax bracket.

This computation works really well for people who have jobs that provide health insurance coverage, little or no other income, and don’t have children. For instance, let’s look at a single person’s income of about $42,000, including unemployment income. They would be in the 22% tax bracket. Now, subtract $10,200 and their tax bracket drops to only 12%. This person gets an extra $1,000 of refund. This person isn’t going to want to amend!

But what about people who have children – or more complex tax returns?

Dropping their income by $10,200 will reduce their adjusted gross income (AGI) and might increase their refundable credits (child tax credit, earned income credit and American Opportunity credit).  The lower AGI may also increase their right to other deductions or tax credits:

  • Suspended real estate losses (up to $25,000) might become deductible
  • Non-deductible IRA contributions might now qualify for a deduction
  • Student loan interest and tuition and fees deductions are limited by AGI – they might become deductible.
  • Taxable advance premium tax credits (insurance from the marketplace) might well turn into refundable credits.
    • Yes, we know that Congress waived the taxes for 2020 – but reducing the adjusted gross income might turn those (forgiven) balances due into refunds – this could be a substantial windfall.

Then, look at people who collect Social Security benefits.

Normally those benefits are tax-free. However, when they have other income, like wages, self-employed business income or investment income – or unemployment – up to 85% of those Social Security (SS) benefits can become taxable. Dropping the AGI can bring the income low enough so none of the SS benefits are taxable.

For instance, let’s say a couple is receiving $18,000 of SS benefits each, $2,000 of tax-free interest income, a pension of $20,000 and $10,200 of unemployment benefits (assuming they didn’t get more than that…)

Using live software, we determine that $11,270 of the SS benefits are taxable, resulting in taxes due to the IRS of  $1,407. (Details in our files)

When we remove the unemployment from the equation, the taxable income is zero.

The IRS would have sent them $1,020. By filing an amended return, they can get an additional refund of $387.

Depending on the state they live in, they might get additional refunds from the state – although most states don’t tax Social Security income in the first place.

Good News for people with Professionals

Tax professionals will take care of their clients, either now or when you come in for next year’s tax appointment. So, feel free to wait until then – and see what else the IRS does about issuing refunds to those people who paid the penalties because their income was too high for the Premium Tax Credit.

The folks at VITA (Volunteer Income Tax Assistance) have told me that they will be reviewing the 2020 tax returns for all of their clients – and that VITA does have the authority to prepare the amendments for them. At no charge. That means that the teams at TCE (Tax Counseling for the Elderly – often run by AARP), will probably do this as well. You might also be able to get help from the Low Income Tax Clinics, often run by colleges and universities, if you have a problem getting the IRS to accept your amended returns.

In Short

Although the numbers presented may not look enormous, for some households, this can mean thousands of dollars’ worth of refunds. Others – maybe only hundreds. It’s well worth your time to recompute your revised tax liability once you get that IRS refund check. And remember, the IRS will be paying interest on the additional refunds – a lot more than your bank pays.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

 

Follow TaxMama’s® on Twitter  @TaxMama   
https://twitter.com/TaxMama  
Follow TaxMama on YouTube - 
https://www.youtube.com/taxmama

 

Please feel free to share
 



The Enrolled Agents Examination – PLEASE JOIN US

The new 2021-2022 exam will include all the CARES Act laws, the PPPs,
and the tax laws in the latest 5.593 page  Consolidated Appropriations Act! 



Join us for Part 3 of the EA Exam!  
Tonight, we cover Audit Workpapers
 https://irsexams.school/signup/


Anyone signing up this summer, gets access to over 40 educational tax videos (and downloadable MP3 files), as well as 12 3.5-hour Final Review sessions that specifically teach you how to answer the exam questions. And you remain in the class, at no additional charge to attend or view our sessions, until you pass - or even beyond.
(Just don't unsubscribe from the class emails)

Remember, if you are presently unemployed, check with your  unemployment office or business insurance coverage – they just might be able to pay your tuition. 
This is a great time to improve (or develop) your skills as a tax professional.

 




Everything You Wanted to Know About the 2021-2022 Enrolled Agent Exam.
Get all the information you need about this year's Special Enrollment Examination here.
https://taxmama.com/tax-quips/everything-you-want-to-know-about-the-ea-exam/

Watch this before you ask me questions, please.


And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

Hugs

Eva


 


 

Some Helpful IRS Links

IRS CoronaVirus updates
https://www.irs.gov/coronavirus

Which IRS services are open and available – keep an eye on this link 
https://www.irs.gov/newsroom/irs-operations-during-covid-19-mission-critical-functions-continue

IRS Electronic Options
https://www.irs.gov/newsroom/irsgov-helps-taxpayers-get-tax-information-they-need-find-tools-for-filing-paying-checking-accounts-and-answering-questions

IRS Online Assistance Available
https://www.irs.gov/newsroom/irs-urges-taxpayers-to-use-electronic-options-outlines-online-assistance

Dealing with audit or collections issues – IRS is keeping this page up to date
https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

Of course, all the filing and paying deadlines - including taxpayers overseas whose June 15th filing deadline has been pushed back to July 15th.
https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers?

And a great chart: How to Use the Tools on IRS.gov to Get Your Economic Impact Payment  https://www.irs.gov/newsroom/how-to-use-the-tools-on-irsgov-to-get-your-economic-impact-payment

There are lots more things going on – watch the information in the IRS Newsroom -  https://www.irs.gov/newsroom  and TaxMama.com  


Incidentally, I don't know if you know - TaxMama.com® is a free resource for people to get answers to tax questions BEFORE they make major, costly moves.

To make comments please drop into the TaxQuips Forum.
 




Small Business Taxes Made Easy

Well, my friends, the book is out and healthy.
The Kindle and audio versions are available.  

 You can get the audio book wherever audiobooks are sold - http://iTaxMama.com/4thEdition_Audio 

 

I would really appreciate it if you have the book and like it –
to please post a
review at Amazon.com .
   This is the best version of the book ever. 

 

And for those people in business, or starting a business,
or with clients who operate a business, we have completed the
12-week course based on the book, at CCH CPE Link.
It turned out really well and people found the information extremely helpful!
The course follows each chapter of the book – but also provides help to deal with your business issues during this COVID19 shutdown and quarantine. Who knows, it might help you  save your business – or your finances!


Copyright © 2021 Tax Anxiety Inc., All rights reserved.


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