Covid bill changes tax rules midstream. How to file an amended return

The $1.9 trillion stimulus that Congress aimed to send to President Biden this week could make tax returns more complicated.

For some Americans who have filed, that means they need to amend their tax returns.

Last week, the Senate made changes to the Covid relief bill passed by the House, affecting tax filings in the middle of the 2020 season. An important update in the bill, which houses passed on Wednesday, is a tax-free provision for the first $10,200 in unemployment insurance income for individuals with 2020 adjusted gross income below $150,000.

For married couples filing jointly and both having unemployment insurance, the tax-free amount is $20,400, but combined adjusted gross income must still be less than $150,000.

A complicated application season

This policy will protect some families from receiving unexpected tax bills. It also adds complexity to an already short tax season — the IRS this year started accepting 2020 tax returns in February instead of January because they had to submit the last round of stimulus payments.

26, the IRS had received more than 45 million returns and processed about 39 million, according to the agency. Some unemployed earners may have applied for a refund, or to make sure they get a future stimulus check.

That means once a bill becomes law, Submissions will not be accurate and should be updated.

Additionally, the bill’s timing puts other taxpayers with unemployment income in a difficult position. Some taxpayers may now be stuck between filing their tax return early for a refund or waiting to make sure they get the benefit of their next Covid bill and possibly stimulus money. they need.

A game awaits

For now, experts say no one should take any immediate action. The House of Representatives passed an updated version of the bill on Wednesday but still needs to be signed into law by Biden, which he is expected to do on Friday.

“If you haven’t filed your tax return for 2020, you may just want to wait for this legislation,” said Eric Bronnenkant, a certified public accountant, financial planner and head of tax at Betterment. through the.

Once the bill becomes law, the U.S. Treasury Department and the IRS will be tasked with issuing instructions to taxpayers on what to do depending on their situation, which could take several weeks.

If you filed your 2020 tax return but have unemployment income and would benefit from the new Covid bill, it’s likely the IRS will update your information and send you any money owed. If that happens, it means those people don’t have to take any action to update their tax returns.

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But there’s a good chance the IRS won’t be able to do that, which means taxpayers will have to file another return to correct the information by April 15 – which is now the end of tax season for individuals – or submit a return amendment after the deadline.

“I really doubt they have the ability to track who has reported unemployment and paid taxes to whom and who hasn’t,” said Edward Renn, a partner at law firm Withers. “I didn’t know they could fix the problem without the taxpayer being involved.”

Either way, it’s best for taxpayers to wait at least a couple of weeks for more information before filing or attempting to amend information they’ve submitted to the IRS, Renn said.

How to modify profit

If you need to file an amended return, the good news is that you can now do it online instead of having to mail it in paper form.

In 2020, the IRS released Form 1040-X to amend electronic income. Electronic Form 1040-X for 2020 is available online from the IRS. Those who have filed through other online tax preparation platforms should check with the provider to see if they offer a revised electronic filing and an updated form.

To fill out the form, you need the declaration you submitted earlier and know what information needs to be updated.

“The bottom line of the form shows three columns: initial amount, net change, and corrected amount,” said Susan Allen, CPA, senior manager for tax practice and ethics at the American CPA Institute. “. “The bottom of the first page of Form 1040-X will then calculate how much you currently owe or how much the IRS currently owes you.”

Technically, there’s no limit to the number of amendment returns you can file, although it can get complicated doing more than one. And, if taxpayers can’t properly declare the revised return on their own, it can become an expensive process.

“There’s going to be an unnecessary expense to taxpayers here if they can’t figure out how to do it themselves,” said Adam Markowitz, a representative of the Howard L Markowitz PA CPA in Leesburg, Florida.

And, while some people may be eager to get their money back, there’s no tight deadline for filing an amended return – in general, you have up to three years from the date you filed your original return. Start to submit a modified one and request a refund.

That means everyone should take their time to get a modified return together, says Markowitz.

“It is much more important to get this done the right way than to get this done quickly,” he said.

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