New York is one of them and it has some of the highest taxes in the country." "A lot of states follow federal guidance so they will include that forgiveness, but there's about 12 that don't. "I'm a New Yorker and I still have a significant tax bill from state and local taxes," she said. Other states that usually tax unemployment may decide not to do so this year.Į is pushing for all states to follow the federal government's lead and exempt unemployment benefits from taxation, Freed said. States such as Alabama, California, Montana, New Jersey, Pennsylvania and Virginia already exempt unemployment benefits from taxation. Some states are expected to change their tax law to follow the federal guidance. If I filed her return, it wouldn't work," he said. "I have one client that got $15,000 in unemployment. "I have two stacks of returns that I can't file right now," said Rob Seltzer, a CPA based in Los Angeles. Tax pros say it will take at least a few days, if not longer, for tax software to reflect recent changes in the law. The IRS said it "will provide a worksheet for paper filers and work with software industry to update current tax software" to make it easier for people to report unemployment benefits. "Hold on and wait" is also the IRS' message to taxpayers who have yet to file. The alternative - digging through a mountain of amended returns-"really does create more processing burden for the IRS," which started this season with a backlog from last year, Olson said. Nina Olson, the former National Taxpayer Advocate, told Politico that such automatic correction on already-filed returns was well within the IRS' abilities. Cindy Axne of Iowa, who along with 19 members of the House and Senate urged the IRS to automatically issue refunds without requiring amended tax returns. Among those advocates are Senator Dick Durbin of Illinois and Rep. Many advocates have called for the IRS to proactively issue refunds to taxpayers who overpaid. "For those who received unemployment benefits last year and have already filed their 2020 tax return, they should not file an amended return right away as the IRS expects to issue additional guidance," Commissioner Chuck Rettig told a congressional subcommittee on Wednesday. Taxpayers who received unemployment income last year and have already filed their 2020 tax returns, should wait before filing an amended return, the IRS says. If you got benefits and filed your 2020 taxes: Wait When Harwood explained the situation to her daughter - who had been expecting a refund to put toward a new car - she "started to cry," Harwood said. Harwood filled out her daughter's tax return and found that she owed $1,000 in federal and state taxes. It was even worse for Harwood's eldest daughter, who worked at a fast-food restaurant before the pandemic pushed her into unemployment. In a bit of good news for confused taxpayers, the IRS extended the tax filing deadline to May 17, after several members of Congress, including House Ways and Means Chairman Richard Neal and Oversight Subcommittee Chairman Bill Pascrell, pushed for a delay. But it also affects an already complex tax season for a tax collection agency that is already behind thanks to understaffing and pandemic-fueled disruptions. The change is good news for many taxpayers, who could save as much as $25 billion, according to the Wall Street Journal. States that currently tax unemployment benefits have yet to decide whether they will allow those state taxes to be waived as well. The law waives federal income taxes on up to $10,200 in unemployment insurance benefits for people who earn under $150,000 a year, potentially saving workers thousands of dollars. The $1.9 trillion American Rescue Plan signed into law last week includes a welcome tax break for unemployed workers. Economics of Biden's $1.9 trillion COVID relief bill 11:06
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