WASHINGTON – Congress is about to change some tax law that will affect the tax returns filed by up to 40 million Americans – one month after the tax season begins.
The move, which was approved by the Senate on Saturday and headed toward the passing of the House on Tuesday under the Coronavirus Relief Act, would free the first $ 10,200 of 2020 unemployment benefits from the income of households less than $ 150,000 Dollars earned. That could save households around $ 25 billion, but implementing the change would be a challenge for the already strained Internal Revenue Service and could lead to unusual disruptions.
By the end of February, the IRS had already received more than 45 million tax returns, some of which likely need to be amended now. And the IRS will have to reprogram their computers to accommodate the new, retrospective change when the person file comes back to use. It does this during an already chaotic tax season made more difficult by the coronavirus pandemic, remote working, and a host of other tax changes.
“We’re trying to keep track of everything else we’re trying to keep track of,” said Jack Dalton, accountant with the Richards Group in Puyallup, Washington. He said his company had already contacted six or seven customers, whose returns were almost ready, told them they would have to wait to see what Congress and the IRS are doing.
“It makes it really difficult for tax practitioners. Nobody really cares about us, but it just makes it so difficult. You laugh. We cry.’
Some lawmakers and tax advisors are pushing for the April 15th tax deadline to be delayed. Last year, when the pandemic started and disrupted tax advisors and the economy, the IRS delayed the deadline until July 15
“It makes it really difficult for tax practitioners,” said Wayne Landau, an accountant in Garden City, NY. “Nobody really cares about us, but it just makes it so difficult.” You laugh. We cry.”
Additionally, the IRS is still working on a 2019 backlog and is grappling with some incorrectly issued notices.
Even before the latest proposals on unemployment insurance, IRS Commissioner Charles Rettig had stated that a blanket extension of the April 15 deadline was not necessary. A spokeswoman for the finance ministry declined to comment. The IRS does not comment on pending laws. Taxpayers in Texas and Oklahoma have until June 15 because of the storms in those states.
“With the tremendous burden and fear, taxpayers need flexibility now,” Rep. Richard Neal, D., Mass., Chairman of the House Ways and Means Committee on Tax Letters, and Rep. Bill Pascrell, D., NJ, said a statement from Monday. “We request that the IRS announce an extension as soon as possible.”
Former IRS Commissioner John Koskinen said the agency will likely need to stop accepting tax returns for at least a few days after the law goes into effect so that it can reprogram and test its computer systems.
“You’re really trying to fix the plane when you fly it,” he said.
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Unemployment insurance has generally been considered taxable income for several decades as it is viewed as a substitute for income earned. However, state rules for withholding unemployment benefits vary, and proponents warned that millions of people would face surprising tax burdens.
Some Democrats, including Senator Richard Durbin of Illinois and Rep. Cindy Axne of Iowa, had pushed for tax exemptions, but party leaders left them out of the first versions of the relief bill.
The Senators added the proposal late last week as part of an agreement reached to secure Senator Joe Manchin’s (D., W.Va.) vote. Someone in the 12% tax bracket could save more than $ 1,200. Those in higher brackets could save more, while those without income tax liability would get little or no benefit.
“The inclusion of our provisions is welcome news to the millions of Americans who use unemployment benefits to shelter, put food on the table, and pay for health care and other necessities,” Durbin said in a written Explanation.
The change applies to the 2020 tax year, not the 2021 tax year.
The IRS opened tax filing season that year on February 12th, a few weeks later than usual. The agency cited late tax changes made by Congress in December. Before the IRS accepts returns, they must program and test their computers. A recent technological improvement could help the IRS: it has started accepting some modified returns electronically instead of requiring paper.
The change will also move into state tax systems, with the exception of those who already lack income taxes or who are already income-exempt from unemployment benefits. Some states automatically adopt federal income definitions, others do not.
States need to adjust their own computer systems, alert taxpayers, and prepare to accept amended tax returns, said Verenda Smith, assistant director of the Federation of Tax Administrators, an association of state tax administrators.
But states do not want an extended deadline either, as this entails their own personnel costs and delayed income.
“I’ll call it a mess,” said Ms. Smith. “You will find out. That’s what they do for a living. “
Write to Richard Rubin at [email protected]
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