American Rescue Plan

Memo on the American Rescue Plan and Unemployment Benefits

The American Rescue Plan Act, H.R. 1319, was signed into law March 11th by President Joe Biden, one day after the House of Representatives passed it by a vote of 220–211.

Of the many packages created to help provide aid to individuals and businesses, one item will directly impact 2020 income tax returns for those that received unemployment benefits last year. The first $10,200 in unemployment benefits will now be tax-free in 2020 for taxpayers making less than $150,000 per year, potentially saving workers thousands of dollars. States that currently tax unemployment benefits have yet to decide whether they will allow this portion of unemployment benefits to be tax free as well.

The fact that the tax law was changed a month after the IRS started accepting tax returns promises to further complicate an already challenging filing season. The IRS has not yet issued guidance on how taxpayers who have already filed under the old tax law can reclaim any money they may have overpaid under the new law (UPDATE: March 17, 2021, the IRS is advising taxpayers not to file amended returns as they look to internal solutions). We are expecting changes to tax forms and software to take a few weeks, if not longer. Individual states will also have to determine if they will follow Federal changes regarding the taxability of this portion of unemployment income.

At this time, we are recommending clients to continue providing their tax documents to our office so that we can prepare and hold the returns while we monitor this situation. If it’s determined that an amended tax return needs to be prepared for those that have already filed, Conlon & Company can provide this service for an additional fee.