What’s New For You?

Have you been following the continuous changes by Congress in an attempt to pull us out of this hole the pandemic has put our economy in?

Its OK, if you haven’t really, that’s kind of my job anyway! However, just in case you haven’t heard, or just want some clarification; there have been some changes to recent tax laws that can have a significant impact on your 2020 year tax return.

If you have already filed your taxes don’t fret, I’ll let you know what you will need to do.

But first, let’s talk about the changes and what they mean for you. The America Rescue Plan (ARP) enacted March of this year (I know technically, we are still in March), made two fairly significant changes. First being unemployment (1099-G), and the second is refunding penalties for underestimating your health insurance premiums through the Marketplace (Obamacare). Now this is important for those who filed a 1095-A.

The ARP is giving a tax break on the first $10,200 of unemployment benefits you received in 2020. If your adjusted gross income (AGI) is less than $150,000. (WHAAAATTTT!!!!) If you received less than that, your credit will be based on the amount of unemployment you did receive.

That is great for anyone who received unemployment last year. Of course there are caveats to this:

If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200.
Amounts over $10,200 for each individual are still taxable.
If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
If you file Form 1040-NR, you can’t exclude any unemployment compensation for your spouse.

If you have already filed your 2020 Form 1040 or 1040-SR, there is no need to file an amended return (Form 1040-X) to figure the amount of unemployment compensation to exclude. The IRS will refigure your taxes using the excluded unemployment compensation amount and adjust your account accordingly. The IRS will send any refund amount directly to you.

Winner winner Chicken dinner!

1095-A Penalty refund

The second big change on the ARP is the removal of penalties for underestimating your health insurance purchased through the Marketplace. Here’s how it works, when you sign up for Obama Care, you give an estimate to what you believe your income will be for the next year. Obama Care basically counts every penny that comes into your household including money made by your spouse, children, and/or dependents, as income. This includes unemployment you may have received (Stick with here this part is important). Some people underestimate this figure to be able to afford the monthly premiums set up by the Marketplace. To make up for the shortage the IRS will use your tax return to make up the difference. (It is basically a pay me now or pay me later type of situation.)

At this moment the IRS has not released how this reversal of penalties will be handled.

However, with both of these refunds the IRS has been very clear about one thing!

DO NOT FILE AN AMENDED TAX RETURN

Something of Note: By granting these refunds and penalty reversal, the IRS is essentially creating a domino effect that can alter your entire return. Remember how I stated that Obamacare takes into account unemployment? Well, by removing up to $10,200 of taxable income per person in your household it decreases the overall income. This may have an effect on the credits and tax deductions you are entitled to on your return including but not limited to the Earned Income Credit (EIC) and Child Tax Credits. Since the IRS has not ironed out all the wrinkles the ARP presents for them; we still do not know how these changes will be handled.

Remember at the end of the day we are all at the whims and fancies of the IRS.

Want to stay current with all the latest updates? Check IRS.gov/coronavirus.

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