Do you remember those special days back in the spring and summer of 2020 when a lot of folks were forced to get Unemployment Compensation? Congress passed a law in March 2021 that made the first $10,200 of Unemployment Compensation in 2020 as NON Taxable. What a mess that was. A LOT of folks had already filed their 2020 tax returns, reporting 100% of the Unemployment Compensation they received as taxable.
IRS tried to make this right, but remember, it wasn’t their fault. Congress retroactively changed the tax law right in the middle of the filing season. Note: I love to pick on Congress. They do a LOT of stupid things. The timing of this law was HORRIBLE. It made a mess. All tax preparation software had to be reprogrammed in the middle of using it. The IRS had to reprogram their computers too. Kind of like trying to replace a valve in an engine while it is running!
The end result was the IRS reviewed a lot of tax returns already filed and issued refunds. According to the IRS, they corrected about 14 million tax returns, with over 12 million of them resulting in an average refund of $1,232. FYI, that amounted to $14.8 billion in total refunds that the IRS voluntarily sent out without any action required by the taxpayer. We like to pick on the IRS for their sometimes-bumbling actions, but they deserve some sort of medal for that. They were seriously short-staffed too.
So, here’s the rub. The IRS admits that they didn’t fix EVERY return that should have been. The rest is up to the taxpayers to file an amended return to claim their refund before the statute of limitations runs out on 2020 returns. Which, by the way, that runs out on October 15th, 2024. Don’t let that lull you to sleep. If you don’t file for a refund before that date, the IRS gets to keep your potential refund.
So, if you received Unemployment Compensation in 2020, and originally reported it as fully taxable AND did not receive any IRS notices with a refund check or direct deposit into your bank account, you should consider amending your 2020 tax return before it’s too late.
The process of filing an amended return is simple. Many commercial tax preparation software has this ability. The key is to make sure your originally filed tax return is entered properly and then you make the changes. The actual amended tax form is 1040X, but you will need to attach some of the original and changed versions of the normal tax return as well. You should opt for electronically filing this amended return, since the IRS is taking almost 1 year to process paper filed amended returns.
Have you heard? Proverbs 14:23 says, “In all hard work there is profit, but the talk of the lips leads only to poverty.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.