Earned Income Tax Credit Refigured?

If you received unemployment benefits in 2020, you may be eligible for an earned income tax credit (EITC) if you didn’t claim one, or a larger one if you did. Why? The American Rescue Plan Act provided that up to $10,200 in unemployment benefits are excludable from gross income, provided adjusted gross income is less than $150,000. Those who didn’t yet file their 2020 federal income tax returns should not include such benefits if eligible for tax-free treatment. Those who already filed do not have to submit an amended return; the IRS will make adjustments to recalculate taxes and, where applicable remit refunds (IR-2021-71). The process will begin in May 2021.

With respect to the EITC:

• If you already filed your 2020 return and claimed an EITC, the IRS will make adjustments related to the excluded unemployment benefits.
• If you already filed your 2020 return but did not claim any EITC although now eligible for it, you must file an amended return to seek a tax refund.

Note: Review your state income tax returns to see whether adjustments and amended returns are needed.