STOCKTON, Calif — With Tax Day fast approaching on May 17th, tax forms are still being changed. The American Rescue Plan Act has a provision that makes the first $10,200 in unemployment benefits nontaxable. That means you won't pay as much in taxes on unemployment income.
21-year-old Amanda Harlow of Carmichael worked part-time while going to American River College, but in March of last year, at the start of the coronavirus pandemic, she was laid off.
"She was working in the service industry working about 25-30 hours a week," said Angelia Harlow, Amanda's mother.
Amanda began collecting unemployment benefits, including those extra $600 and $300 a week payments, that many have received. While unemployment isn't taxed in California, it is taxed at the federal level.
"She volunteered and elected to have federal income tax taken out of her unemployment benefits each certifying period," Harlow said. While that covered regular unemployment benefits, what Amanda and so many others didn't know is it did not account for the pandemic funds.
In a statement, the Employment Development Department said, "this withholding option was not available for the $600 Pandemic Additional Compensation payments, which needed to be quickly implemented at the time to get benefit funding to eligible claimants in need of them."
"She went to the CPA to do her tax return for 2020. And, the CPA called and told her that she would be owing $1,000," said Harlow.
Fast forward to the recent passage of the American Rescue Plan. In it, up to $10,200 in unemployment benefits will not be taxed.
"Which is just common sense. I mean, if your neighbor comes and asks you for help, you don't give it to him and then next day go and ask him for 10 or 20% of that back," said Josh Harder, a Democrat from Turlock, who is a member of the House of Representatives representing the 10th Congressional District.
"It's not often that they changed last year's rules in the middle of filing season. That's never happened in my 35 years," said Perry Ghilarducci, a Certified Public Accountant with Avaunt Ltd, a CPA firm in Sacramento.
He says if you filed your taxes or are still waiting to file them, either way, it has put taxpayers in a difficult spot.
"Honestly I expect that there will be a correction made in the IRS' system and that a letter will be sent to the taxpayer informing them of their overpayment," said Ghilarducci. "If the IRS can fix it, without having to endure the pain of, you know, potentially now millions of amended returns being filed, because that's a paper process. And we know that the IRS is not doing well with paper these days."
Bottom line, the IRS says for those who already filed, do not file an amended return until the IRS issues additional guidance. For those who haven't filed, the IRS will provide a worksheet for paper filers and work with the software industry to update current software.
