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Tax Amendments Due To Changed Unemployment Taxation

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Amendment due to Unemployment Compensation Taxation Exclusion - UCE
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The Unemployment Compensation Exclusion (UCE) and your 2020 Tax Return. 

  • If you e-Filed on or after March 16, 2021, you don't have to do anything; you do NOT have to file a tax amendment. AZ and VT are temporarily on hold as a result. 
  • If you e-Filed on or before March 15, 2021, follow the instructions below. 

Due to the recent changes from the American Rescue Plan Act (ARPA), the IRS is excluding up to $10,200 of Unemployment Income ($20,400 if Married Filing Joint Return - each spouse receiving unemployment compensation does not pay IRS income taxes on unemployment compensation of up to $10,200).

  1. The IRS has stated that taxpayers won't have to do anything to take advantage of this change and you do not have to file an IRS tax amendment. On March 31, 2021, the IRS announced that refunds or supplemental payments (increased refund or decreased taxes owed) will be sent out - including an IRS letter or notice - starting in May 2021 through summer of 2021. Information about a payment status or lookup tool has not been provided. See information on the third stimulus, unemployment changes, and plus-up payments or supplemental payments.
  2. As a result of this adjustment, your 2020 IRS AGI will change and certain credits that were claimed on your return might change as well. You will not have to file an amendment for this either.
  3. Due to the 2020 AGI change, you might now qualify for one or more tax credits, like the Earned Income Credit. In order to claim these credits, you will have to file an IRS tax amendment. However, we suggest not to file an amendment until you have received the supplement payment and a letter from the IRS in May or by the summer of 2021 - see point 1. above.
  4. State Tax Return(s): The change of your 2020 IRS tax return AGI - adjusted gross income - should be reflected on your state tax return(s), even though it might not necessarily change the tax return results of your 2020 state tax return(s). State specific tax amendment instructions are listed below.

The instructions below are for taxpayers that filed their tax return on or before March 15, 2021.

UCE related IRS Tax Amendment Update as of March 31, 2021

IRS 2020 Tax Amendment?
Explanation
Your other credits, etc.
Generally, if you claimed a credit on the original and e-Filed 2020 IRS return and now as a result of the lowered 2020 AGI the eligible credit amount might change or increase, you should NOT file an IRS tax amendment to claim this change as the IRS will make this adjustment. Any state return(s) you filed will not be adjusted and you should file the state tax amendment(s).
On the other hand, if the lowered 2020 AGI makes you now eligible for NEW additional credits, you should prepare and file a tax amendment to claim these additional credits with the IRS and or State. If the change makes you NEWLY eligible for a credit, you would have to file an amendment to see this change. We suggest you do not file a tax amendment until you have received a letter or the supplemental payment from the IRS.
How do you know what has changed?
On your My Account: (see image below My Account -> 2020 Tax Return - shown with an e-file date.) 1. Click on the link PDF 2020 Tax Return, then 2. click on the link below I'd like to see a working copy of my return. You can compare both PDF returns (original and adjusted) in your browser tab.
1. Example EITC: You DID claim the EITC
If you did claim the EITC or Earned Income Tax Credit on your originally e-Filed IRS return (see Form 1040 Line 27), but now as a result of the lowered 2020 AGI, you become eligible for an increased EITC amount, you do NOT have to file an IRS tax amendment as the IRS will make the adjustment. You should however prepare and file state tax amendment(s).
2. Example EITC: You DID NOT claim the EITC
If you did not claim the EITC or Earned Income Tax Credit on your originally e-Filed IRS return (see Form 1040 Line 27), but now as a result of the lowered 2020 AGI, you do become eligible for the EITC, you should file an IRS tax amendment claiming the EITC and state tax amendment(s) to claim a similar or other state credits.
  • You can not eFile a state tax amendment via your eFile.com account, but you can prepare, download, and print the adjusted state forms you created from your My Account page.  Some states use the same form for tax amendment than the income tax return by simply checking off a box on top of the form indicating that you are filing it as a tax amendment. At the bottom is a list that you should file a tax amendment for; details on your state(s) tax amendment process.

Some state tax returns use the federal tax return Adjusted Gross Income (AGI is listed on Form 1040 Line 11) to calculate your state income tax. As such, your federal AGI may now change because of the APRA Unemployment Income changes. See instructions on how to prepare and file a state tax amendment.

eFile.com Suggestion: Even though there are many reasons to get this done as soon as possible, please be aware that if the state tax agency verifies your new state amended 2020 AGI with the 2020 IRS AGI, there might be a timing discrepancy as the IRS might not have adjusted or updated your adjusted 2020 AGI as a result of the unemployment compensation exclusion. Thus, this might result in state tax amendment rejection. On the other hand, if you get this filed early, you might get it processed earlier by the state. Therefore, we do suggest you include the sample letter below with your state tax amendment as a way to explain to the state the purpose of your state tax amendment.


Review your adjusted Returns and complete your State Tax Amendment:

  1. Sign in to your eFile.com Account
  2. View, download your original e-Filed Tax Returns(IRS/State) PDF from your eFile.com account.
    • My Account -> 2020 Tax Return - shown with an e-file date.
  3. A working copy PDF of your UCE adjusted Tax Return(s), showing your updated IRS and State 2020 AGI amounts.
    • My Account -> Click link "I'd like to view a working copy of my return".
    • After a few moments, click the View Return button that will appear.
  4. Go To https://www.efile.com/tax-amendments-by-state/ and click on your state in the list at the bottom of the page.
  5. For some states the original income tax forms is also the tax amendment form, and you might just have to check off that you are filing a tax amendment on the printed copy.
  6. Complete the State Amendment Form as instructed on the form.
  7. Print, sign, and date state amendment form. 
  8. Below a sample letter we recommend you include with your UEC based state tax amendment to the state tax agency to explain the reason for your tax amendment. You can see a sample letter below, just replace the items in [] with your actual information.

Sample Attachment Letter

To Whom it May Concern,

I am amending my [state] Tax Return in response the American Rescue Plan, recently signed into law. 

I filed my [state] Tax Return on [date]. The Federal AGI listed on that filing was [Original AGI].

After the American Rescue Plan Unemployment Exclusion Calculation, my updated Federal AGI is now [New AGI].

I am submitting this letter to you because I do not know if or when the IRS will update this AGI in their system, and I wanted to let you know why my Federal AGI was updated.

Best Regards,
[Name]

Tax Amendment Requirement by State

State
Tax Amendment Needed?
How to File 1) 2)
N/A for UEC. 2) Checkbox for all others
N/A
Wait, Undecided. Wait for IRS letter about supplement payment.
2) Checkbox Form 140X
N/A for UEC. 2) Checkbox for all others
Yes. Wait for IRS letter about supplement payment.
2) Checkbox. 1) Prepare Schedule X
Yes. Wait for IRS letter about supplement payment.
Prepare Online 1) Prepare 140X
Yes. Wait for IRS letter about supplement payment.
1) Prepare 104X
Yes. Wait for IRS letter about supplement payment.
1) Prepare 200-01-x
Wait, Undecided. Wait for IRS letter about supplement payment.
2) Checkbox.
N/A
Yes. Wait for IRS letter about supplement payment.
1) Prepare 500x
Yes. Wait for IRS letter about supplement payment.
2) Checkbox. 1) Prepare Schedule AMD
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
Yes. Wait for IRS letter about supplement payment.
1) Prepare IT-40X
No, Iowa state will adjust UCE. Wait for IRS letter about supplement payment. If, as a result, you qualify for other Iowa state credits etc. file a tax amendment.
1) Prepare IA 1040X if amendment is needed for other reasons
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
1) Prepare MD 502-X
Yes. Wait for IRS letter about supplement payment.
2) Checkbox - mark oval
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
1) Prepare M1X
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox MO-1040
Yes. Wait for IRS letter about supplement payment.
2) Checkbox MT Form 2
Yes. Wait for IRS letter about supplement payment.
1) Prepare 1040XN
N/A
Yes. Wait for IRS letter about supplement payment.
1) Prepare NJ 1040X
Yes. Wait for IRS letter about supplement payment.
1) Prepare PIT-X
Yes. Wait for IRS letter about supplement payment.
1) Prepare IT-201-X or IT-203-X
2) Checkbox D-400. 1) Prepare D-400AM
Yes. Wait for IRS letter about supplement payment.
2) Checkbox ND-1
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
No, Oregon state will adjust Unemployment Compensation Exclusion (UCE). Wait for IRS letter about supplement payment. If, as result you qualify for other state credits etc. file an Oregon tax amendment.
2) Checkbox OR-40. If a tax amendment is needed for other reasons then Unemployment Compensation Exclusion.
Yes. Wait for IRS letter about supplement payment.
Online 1) Prepare PA-40
Yes. Wait for IRS letter about supplement payment.
2) Checkbox RI-1040-R or RI-1040-NR
Yes. Wait for IRS letter about supplement payment.
2) Checkbox SC-1040
N/A
Yes. Wait for IRS letter about supplement payment.
2) Checkbox
Yes. Wait for IRS letter about supplement payment.
2) Checkbox IN-111
Yes. Wait for IRS letter about supplement payment.
2) Checkbox 760- oval indication
Wait, Undecided. Wait for IRS letter about supplement payment.
2) Checkbox IT-140
Yes. No amendment is needed for the Unemployment Compensation Exclusion (UCE).
No UCE related amendment needed. 2) Checkbox for all tax amendments.
N/A

1) Prepare means you prepare a state tax amendment by loading the form from the state page. Then complete, sign and download, print and mail it to the state with associated documents as listed on the form. You can also prepare the corrected or updated state income tax return from your eFile.com account. Review, download the results from your My Account. There, click on the link I'd like to view a working copy of my return. This PDF will reflect any changes you made after you e-Filed your return(s). The mailing address should be on the form; if not click click on the state related page.

2) Checkbox means you can prepare the state tax amendment from your eFile.com account. Make all the necessary corrections on your state pages and then click on your My Account. There, click on the link I'd like to view a working copy of my return. This PDF will reflect any changes you made after you e-Filed your IRS and State return(s). On the PDF at the top of the page you would see a check box or oval space, please check that to indicate you are filing a state tax amendment. The mailing address should be on the form, if not click click on the state related page

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