The I.R.S. begins accepting tax returns on Friday. Millions of people received stimulus payments and unemployment assistance last year — but they are treated differently for tax purposes. In this week’s Your Money Adviser column, Ann Carrns lays out the implications for both.
Stimulus Checks
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The good news is that you don’t have to pay income tax on the stimulus checks, also known as economic impact payments. In fact, if you were paid the amount you were expecting and your family circumstances haven’t changed, you don’t need to include information about the payments on your 2020 tax return, the Internal Revenue Service says.
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If you were eligible for the payments, but didn’t receive them for some reason — or didn’t receive the full amount — you can still get the money by claiming a “rebate recovery” credit on your 2020 tax return. You must file a return, even if you’re not otherwise required to do so, to claim the credit.
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Similarly, if you had a life change in 2020 — like the birth of a child, or if you are supporting yourself and are no longer claimed as a dependent on a parent’s tax return — you could be eligible for more cash by claiming the credit on your 2020 return.
Unemployment Assistance
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Unlike stimulus payments, jobless benefits are taxed by the federal government as ordinary income. (You won’t, however, pay Medicare and Social Security taxes on jobless benefits as you would with paycheck income.)
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You should receive a form, 1099-G, detailing your unemployment income and any taxes that were withheld, which you enter on your tax return.
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You’ll probably also owe state income taxes on the unemployment benefits, unless you live in one of the nine states that don’t have a state income tax or a few others that exempt jobless benefits, including California, Montana, New Jersey, Pennsylvania and Virginia. Wisconsin exempts jobless benefits for state residents, but taxes benefits paid to nonresidents, according to the Tax Foundation.
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February 12, 2021 at 03:58PM
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The IRS Is Now Accepting 2020 Tax Returns - The New York Times
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