Candace J. Dixon
Several provisions of the American Rescue Plan affect 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 that are generally equal to $1,400 per person for most people. These are currently going out to eligible taxpayers .
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 getting these retroactive tax benefits, as it won't speed up a future refund, and it could slow down an existing refund claim.
Some unemployment compensation is not taxed for many people
The first $10,200 of unemployment compensation is not taxable for most households for tax year 2020 only. This tax benefit is available only if your modified adjusted gross income is below $150,000 during 2020. The same income cap applies to all filing statuses.
People who haven't filed a 2020 return yet 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. You can visit this page on the IRS website for more for details.
The IRS is automatically adjusting returns and providing this tax benefit to eligible taxpayers who already filed a return and reported their total unemployment compensation in their income. 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
If you purchased health insurance through a federal or state Health Insurance Marketplace in 2020, you 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 you file your 2020 return only to claim an additional credit. You can use Form 8962 to figure the amount of the premium tax credit you qualify for based on your 2020 tax information and reconcile it with any advance premium tax credit that was paid for you through the Marketplace. If the PTC based on your 2020 tax information is more than the APTC, you can claim a net premium tax credit on Form 8962, which you must file when you file your 2020 tax return.
If the APTC was more than your allowable PTC based on your 2020 tax information, known as excess APTC, the new law suspends the requirement to repay excess APTC for 2020. This means that if you have excess APTC for 2020, you do not need to report the excess APTC or file Form 8962.
If you already filed, you shouldn't file an amended tax return. The IRS will automatically reduce the repayment amount to zero for anyone who already reported excess APTC for 2020. They will also automatically reimburse anyone who already repaid their 2020 excess APTC when they filed.