With the list of changes and updates that the Internal Revenue Service (IRS) has been unloading recently, tax preparation firms have been urged to accommodate any tweaks. And this involves becoming more mindful of any adjustments that you’ll need to make when servicing your clients for the impending finalization of the current tax season.
At this point, you’ve probably already accommodated various changes throughout the stages of tax preparations for the various clients. From industry-localized changes and statement additions to extra forms and considerations in relation to stimulus checks, the list of factors you’ll need to handle is likely larger than ever before.
Among the different items on your tax preparation list that bear a cause for concern, there’s one particular concept that has had most firms scratching their heads: Unemployment Income Taxable.
A quick overview (and an additional question that you may end up asking)
Recently, the IRS announced the availability of a new Unemployment Exclusion for the tax year 2020 that will significantly affect the filing process as a whole.
Available to specific types of taxpayers, it’s important for tax preparation firms to be mindful of this recent adjustment because of the difference it makes in their processes. Unless you’ve already filed your client’s taxes prior to the Exclusion’s announcement, you’ll have the opportunity to file an amended return at this time. Yet, there’s one question that you may have in mind with all this going forward: “Are my clients’ Unemployment Incomes Taxable?”
Answering the question at hand
With COVID-19 acting as a widespread catalyst for retrenchments and labor force revisions across American industries, 2020 saw the largest wave of unemployment in decades. This means that you most likely have an abundance of clients—new and old—who received Unemployment Income Taxable compensation for the first time in 2020 because of the pandemic.
Now, with regards to the question mentioned above: yes, your clients’ unemployment incomes are taxable at the federal and state levels (given that their income is most likely more than the minimum requires to file).
Key factors to consider before filing
With the current knowledge surrounding Unemployment Incomes Taxable arising from COVID-19 and their effect on the tax filing process, it’s important to understand that there are a few considerations you’ll need to make. To ensure that you have the smoothest filing process possible, let’s look at some of the key factors that you must consider along the way:
- Minimum amounts: When it comes to qualifiable amounts, the first $10,200 of Unemployment Income Taxable is not taxable at the federal level for most taxpayers who made less than $150,000 for the tax year 2020.
- Each state has additional mandates regarding its inclusion: Currently, all American states are devising their own ways to handle the latest Unemployment Exclusion update—all of which will affect what else needs to be considered during the filing process. Before you finalize your clients’ returns, it is best to consult with your local IRS office or representative to grasp what else you’ll need to account for during calculation and form-filling periods.
- Inclusions: Unknown to most businesses and professionals, taxable benefits for the tax year 2020 include (1) special unemployment compensation authorized under the CARES Act, (2) the second stimulus package, and (3) the American Rescue Plan.
Fortunately, Keystone Tax Solutions’ tax preparation software has been updated to include all present and future revisions and additional factors that must be considered during the preparation and filing process!
Conclusion
As the pressure rolls on for your tax preparation business to help your clients successfully manage their filing periods accurately and timely, it’s important to consider the effect of the Unemployment Exclusion. Once you consider the key details mentioned above, you’ll be able to ensure that you don’t overlook any key opportunities, obligations, or details during preparation and filing!
If you’re looking for a tax preparation business that can help your business navigate the factors that need to be dealt with during the 2021 filing season, we’ve got you covered. Get in touch with our team of experts today to learn more about our services!
