Covid bill changes midstream tax rules. How to submit a modified return
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The $ 1.9 trillion stimulus package that Congress plans to send to President Biden this week could make tax returns even more complex.
For some Americans who have already filed, it may mean they need to change their return.
Last week, the Senate made changes to the House of Representatives’ Covid Relief Act that will affect its mid-2020 tax return. An important update in the bill that the House passed on Wednesday, is a provision that waives tax on the first $ 10,200 of unemployment insurance income for those who have an adjusted gross income of less than $ 150,000 in 2020.
For married couples filing together who both had unemployment insurance, the tax-exempt amount is $ 20,400, but the combined adjusted gross income must still be less than $ 150,000.
A complex filing season
The directive protects some families from an unexpected tax burden. This also adds to the complexity of an already short tax season – the IRS started accepting 2020 returns in February instead of January this year as it had to send out the final round of stimulus payments.
By February 26, the IRS had received more than 45 million returns and processed around 39 million, according to the agency. Some unemployed individuals may have already requested a refund or to ensure they receive future stimulus tests.
That is, as soon as the bill becomes law, These returns submitted are incorrect and need to be updated.
In addition, the timing of the bill puts other income taxpayers in a difficult position. Some taxpayers may now stand between filing their tax returns early to get a refund or waiting to make sure they get the benefits of the next Covid bill and possibly the incentive money they need.
A waiting game
For now, experts say that no one should take action immediately. The House passed the updated version of the bill on Wednesday but has yet to be signed by Biden, which he is expected to do on Friday.
“If you haven’t filed a 2020 tax return, you may just want to wait for this law to be passed,” said Eric Bronnenkant, accountant, auditor and tax director at Betterment.
Once the bill is in law, the US Treasury Department and the IRS will be tasked with providing instructions to taxpayers on what to do based on their situation. This can take weeks.
If you’ve already submitted your 2020 return but had unemployment income and would have benefited from the new Covid bill, chances are the IRS could take care of updating your information and submitting the money owed. In this case, these individuals would not need to take any action to update their tax returns.
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However, it’s just as likely that the IRS can’t do this, which means taxpayers will either have to file another tax return to correct the information or an amended tax return before April 15 – the current end of the individual tax season Must submit returns after the deadline.
“I seriously doubt they can track who has reported unemployment and paid taxes on it and who has not,” said Edward Renn, partner at Withers law firm. “I don’t know they can fix the problem without the taxpayer’s interference.”
In any case, it is best for taxpayers to wait at least a few weeks for more information before submitting or revising information that they have already submitted to the IRS, Renn said.
How to change a return
If you need to submit an altered return, the good news is that you can now do so online instead of sending on paper.
In 2020, the IRS electronically created the Return Modification Form 1040-X. An electronic form 1040-X for 2020 is already available online from the IRS. Those who have filed through other online tax preparation platforms should check with the provider to see if they offer a modified electronic filing and have the most current form.
To fill out the form, you will need the previously submitted return and know what information needs to be updated.
“The core of the form has three columns: Original Amount, Net Change, and Adjusted Amount,” said Susan Allen, CPA, senior manager of tax practices and ethics for the American Institute of CPAs. “The bottom of the first page of Form 1040-X then calculates how much you now owe or how much the IRS now owes you.”
If you haven’t submitted feedback for 2020, you may just want to wait for this law to be passed.
Eric Sources Page
Head of Taxes, Improvement
There is technically no limit to the number of Modified Returns you can submit, although creating more than one can get tricky. And if the taxpayer cannot figure out how to file the amended tax return for himself, it can become a costly process.
“There will be an unnecessary cost to taxpayers here if they can’t figure out how to do it for themselves,” said Adam Markowitz, registered agent at Howard L. Markowitz PA CPA in Leesburg, Florida.
And while some people may be looking to get back any extra money owed them, there isn’t a tight deadline for filing an amended return – generally, you have up to three years from the date you filed your original return , Time to submit your return changed and request a refund.
That said, people should take the time to get an altered return together, Markowitz said.
“It is far more important to get this right than it is to do it quickly,” he said.
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