Kokua Line: Don’t amend 2020 income tax return to claim American Rescue Plan credits, IRS says

Question: The American Rescue Plan Act signed into law by President Biden on Thursday exempts from federal income taxes the first $10,200 in unemployment benefits for households with 2020 income under $150,000. Will people who received unemployment benefits in 2020 and already filed their 2020 taxes have to file an amended return to capitalize on this exemption? Or will the IRS correct those returns without action by the taxpayer? Or is the answer something else? This affects me and my friends on unemployment. We filed our taxes as soon as we could online (mid-February) because we wanted to make sure that we qualified for the new stimulus based on our lower 2020 income, but now we have this income tax thing to figure out. We are happy for the exemption and hope the state follows suit, but need to know what to do.

Answer: Your question raises several issues, so let’s take them one by one.

No, you should not file an amended return at this time for the tax relief on your unemployment benefits, the Internal Revenue Service said in a statement Friday. The agency is still figuring out how to implement this aspect of the American Rescue Plan Act for eligible people who have already filed their 2020 income tax return, and doesn’t want those filers taking unnecessary action in the meantime. Further guidance will be posted on the IRS website this week, and we’ll share it as soon as we can — many other readers also are asking this question.

For those who received unemployment benefits but haven’t filed their 2020 income tax return yet, the IRS said it would work with the software industry to update tax software so that taxpayers can correctly report their unemployment income, and provide a worksheet for paper filers.

As you indicated, this provision affects only federal income taxes, not state. A bill exempting unemployment compensation from Hawaii income taxes passed in the state Senate but has yet to clear the state House, so that’s not a done deal, to answer another reader’s question. Read the measure (Senate Bill 614) and testimony about it at 808ne.ws/sb614.

Regarding the Economic Impact Payment, commonly known as “the stimulus,” if your income was too high to qualify for the first or second rounds of stimulus funds and you made significantly less in 2020, you were wise to e-file as early as you did. The third EIP, which is being paid now, will be based on 2020 income if the IRS has that figure on file; otherwise it will be based on a filer’s 2019 AGI.

The third round will pay $1,400 to individual filers with AGI up to $75,000 or $2,800 to joint filers with AGI up to $150,000, plus $1,400 for each of their qualifying dependents, which will include college students, disabled adults and dependent kupuna. The first two rounds of EIP disqualified dependents over age 16, and the payment was smaller, $500 and $600. In this round, a qualifying family of four, for example, could expect $5,600.

Be forewarned, though, that this round phases out more quickly than the first two: Individuals who make more than $80,000 and couples who make more than $160,000 won’t get anything, and neither will their dependents.

Q: Did they extend the PEUC? What about the plus-up?

A: Yes, the ARPA extends certain federally funded weekly unemployment benefits through Sept. 6. This includes Pandemic Emergency Unemployment Compensation, paid after individuals exhaust their standard state benefits; Pandemic Unemployment Assistance, paid to the self-employed and others not eligible for traditional UI; and Federal Pandemic Unemployment Compensation, popularly known as the plus-up, which is paid on top of a claimant’s other weekly benefit amount.

These extensions should be easier to implement because they were signed into law before the existing programs expired (which wasn’t the case in December) and the plus-up amount isn’t changing (it will remain $300 a week).

Q: Will there be gaps in payments?

A: The state Department of Labor and Industrial Relations doesn’t anticipate implementation delays. “I do not expect there will be a gap in benefits for most claimants as long as they remain eligible, so claimants will not need to take any extra steps to receive benefits. Claimants will see a new benefit amount in the online portal and receive a written monetary determination in the mail,” DLIR Director Anne Perreira- Eustaquio said in an email Friday.

Perreira-Eustaquio is scheduled to appear Monday at 10:30 a.m. on the Honolulu Star-Advertiser’s webcast Spotlight Hawaii. Viewers can watch live and submit questions on the Star-Advertiser’s Facebook page. For more information, see staradvertiser.com/tag/spotlight-hawaii/

Write to Kokua Line at Honolulu Star-Advertiser, 7 Waterfront Plaza, Suite 210, 500 Ala Moana Blvd., Honolulu 96813; call 529-4773; fax 529-4750; or email kokualine@staradvertiser.com.