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:
Note: Review your state income tax returns to see whether adjustments and amended returns are needed.
Advance payment of current tax liability based either on wage withholdings or installment payments of your estimated tax liability. To avoid penalties, you generally must pay to the IRS either 90% of your final tax liability, or either 100% or 110% of the prior year’s tax liability, depending on your adjusted gross income.