Unemployment extension
The first $10,200 of unemployment payments are now tax-free for households with an annual income under $150,000.
If you’ve already filed your 2020 return, you should not do anything. The IRS will refigure your taxes and send any refund amount directly to you.
Go here for more unemployment updates as they become available.
Unemployment FAQs
How will unemployment benefits affect my taxes?
The IRS, and most states, consider unemployment payments as taxable income. This means that you have to pay tax on these payments and report them on your return. With this new law, if your household income is less than $150,000, the first $10,200 of unemployment will be tax free, but any amount you receive above that will be taxed.
To help at tax time, consider withholding taxes from your unemployment payments up front. You can usually do that by marking a checkbox or choosing that option when you’re filling out your request.
When will this update be reflected in TurboTax? When can I file my taxes?
If you haven't filed your 2020 tax return, yet, go ahead and do so. TurboTax will guide you through claiming these additional unemployment benefits.
If you don't see the change in the version of TurboTax you are using, then you could wait a little longer to file your return. Since IRS extended the filing and paying deadline this year until May 15, then that should give IRS some additional time to work with the software developers on the best way to cover that in the 2020 return.
You should wait as long as possible giving IRS time to update their systems and the software developers to file your 2020 return if you haven't already done so.
If you make manual changes in the return, then you will probably be required to paper file the return. IRS is still processing 2019 paper returns from last year. It would be better to be able to wait and e-file your return because e-filing is so much faster and more accurate.
If you decide to file before the systems are all updated, then IRS will adjust your return for you.
