Tag Archives: pandemic unemployment

IRS Updates Mid- December

2020 Unemployment Exclusion FAQ Update

The IRS has updated the frequently asked questions (FAQs) for the 2020 unemployment compensation exclusion. The updates can be found in Fact Sheet 2022-39, and include questions regarding Form 1040-X; Impact to Income, Credits, and Deductions; Receiving a Refund, Letter, or Notice; and Finding the Unemployment Compensation Amount. 

New for 2023 Filing

Taxpayers are urged to note important changes to tax laws to be better prepared for filing their 2022 federal tax returns. Key changes include:

  • The reporting rules for Form 1099-K. Taxpayers should receive the form if they received third party payments (via Paypal, Venmo, CashApp, for instance) for goods and services that exceeded $600. Taxability of income has not changed, but while the Form was issued only for accounts that had a total of 200 transactions and totaled $20,000 or more for the year, the American Rescue Plan Act has significantly lowered that reporting threshold. 
  • Several Tax Credits return to 2019 levels. The Child Tax Credit of $3000 and $3600 per dependent in 2021 will be $2000; the Earned Income Tax Credit for eligible taxpayers with no children returns to $500 from $1500; the Child and Dependent Care Credit returns to a maximum of $2100 from $8000. 
  • No above-the-line charitable deductions. During COOVID, taxpayers could take up to a $600 charitable donation tax deduction, but for 2022 that is not available.
  • Eligibility rules for the clean vehicle tax credit have changed, thanks to the Inflation Reduction Act. 

More on the “Get Ready” page.

IRA, Retirement Withdrawals for Those Age 72+

The IRS reminds those born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements (IRAs) have upcoming deadlines for required minimum distributions (RMDs) to avoid penalties. RMDs are minimum amounts that many plans and IRA account owners must generally withdraw after age 72. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023 (and the second by December 31, 2023, and each year thereafter). In many workplace retirement plans the first RMD is due by April 1 of the year after they turn 72, or the participant is no longer employed. RMDs are taxable and may be subject to penalties if not taken on time. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Are You Prepared for Unemployment Taxes?

In the craziness that is 2020, Pandemic Unemployment Assistance has helped many people survive when their places of employment had to shut down. Employees often do not think about the fact that unemployment payments are taxable income.

The South Carolina Department of Revenue recently wrote a reminder to help tax payers plan ahead for taxes. You may request that taxes are withheld from your unemployment payments, you may pay on a quarterly cycle, or pay the entire bill due at tax time next year.

Each of these methods has its own advantages and disadvantages. Withholding taxes from your unemployment can cause a reduction in weekly cash flow that you cannot afford while looking for new work. Quarterly taxes will give you regular cash flow and avoid a large lump sum at the end of the year. But, they can result in different payments if you are tracking expenses and tax deductions on the year or if you plan to offset your tax bill with tax credits at the end of the year. Finally, you can pay your entire tax bill during next year’s tax season. With good tax help, this will result in the most accurate tax cost but will also mean that you can be liable for a large lump sum payment when you file your taxes.

No matter your chosen method of managing your taxes, you need to talk to a professional about your tax bill from this year. It is going to be different than any year previously. We are available Mon-Wed, call ahead to arrange a covid-safe appointment with our staff during office hours.