To qualify, individuals and married couples must have filed for unemployment and have an adjusted gross income (AGI) that's less than $150,000 in 2020. The IRS has identified over 10 million taxpayers who filed prior to the implementation of the American Rescue Plan and will correct these returns in phases, starting with the simplest tax returns first. This means they don't have to pay tax on some of it. Take Our PollFind: Dont Miss These 4 Tax Breaks in the $1.9 Trillion Stimulus Plan. Here's how it works. However, according to H&R Block, the IRS "strongly urges taxpayers . For those who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the up to $10,200 exclusion. President Joe Biden signed the bill on Thursday, a day after the House of Representatives passed the Senates version of the bill. It's that time of year again: Tax time. The agency said more details on various parts of the law will be available on the IRS website at a later date. For those who choose to file a paper return, instructions and an updated worksheet about the exclusion are available on IRS.gov. See How to File for options. Whether you're wondering how to claim the unemployment tax break if you already filed or are getting ready to do so, Block has your back. Under the American Rescue Plan signed into law Thursday, the IRS will make the first $10,200 in unemployment benefits from 2020 tax-free. Robert Kerr, a Washington, D.C.-based IRS enrolled agent and tax consultant said waiting can give the IRS time to figure out how to handle these returns, MarketWatch reported. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns. See: If You Get a Stimulus Check, How Will You Use It? . All Rights Reserved. On Friday, the IRS issued guidance that says it "strongly urges taxpayers to not file amended returns related to the new legislative provisions or take other unnecessary steps at this time.". (It is also, apparently, National Animal Crackers Day for those who celebrate.). Taxpayers who have already filed should also wait, they say. These taxpayers may want to review their state tax returns as well. The legislation allows taxpayers who earned less than $150,000 in adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly or $10,200 for all other eligible taxpayers. You will be granted an automatic six-month extension to file. The IRS will start with single taxpayers who qualify for the tax break and then process taxpayers who filed jointly. For example, lets say, for instance, you qualify for the Earned Income Tax Credit (EITC). A couple making just under the $150,000 cap could be looking at a potential $2,200 tax savings by Kerrs calculations. Even for very high income filers, audit rates were quite low: Just 0.4% for those reporting income of between $1 million and $5 million; 0.7% for those with income between $5 million and $10 million; and 2.4% for returns with income over $10 million. Shop Pay is an innovative payment solution developed by Shopify. For those who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the up to $10,200 exclusion. You might be surprised to find Tax Day is almost here, and the IRS is reminding taxpayers that they may be able to use the agency's free tool -- the IRS Free File -- to prepare their own federal tax return "to potentially receive Tax season is approaching, and you can always take steps to be better prepared when it arrives. Also, it is free. Little mistakes and oversights delay the processing of your return (and the issuance of your refund if you're owed one). You had to qualify for the exclusion with a modified adjusted gross income (MAGI) of less than $150,000. Many Americans who were potentially left with a surprise tax bill on that jobless aid are poised to benefit from the new exemption. Learn: 5 Tax experts often advise taxpayers to file their taxes early to expedite their refund or to be in a better position to pay their tax bill by April 15. Individuals should receive a Form 1099-G showing their total unemployment compensation last year. Yes. Lastly, if you made little to no money last year (typically less than $12,950 for single filers and $25,900 for married couples), you may not be required to file a return. The American Rescue Plan Act of 2021 authorizes individual taxpayers to exclude up to $10,200 of unemployment compensation they received in tax year 2020 only. Finance and CBS News Radio. But the strategy may have backfired this year, as early filers who paid taxes on their federal unemployment benefits missed out on an important tax break. Unemployment benefits are generally treated as income for tax purposes. However, because of the unemployment tax break, your income has changed and you may now be eligible for a higher credit. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns. The IRS details the MAGI calculation (and how to claim the unemployment tax break) in online instructions posted Friday. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed. For those who haven't filed their 2020 taxes yet, the IRS says it will work to provide a paper worksheet for those filing by mail and work with tax software providers to update questionnaires and forms so that taxpayers can determine how to correctly report their unemployment income on their 2020 tax return. Americans who took unemployment in 2020, but filed their taxes before passage of the American Rescue Plan on March 11. See: How to File an Amended Tax Return If yours is among them, here are some last-minute tax-filing tips to keep in mind as the Tuesday, April 18 deadline approaches. This potentially affects a lot of people - 40 million Americans received unemployment . Here are some of the tax forms you may have received: "Be aware that there's no form for some taxable income, like proceeds from renting out your vacation property, meaning you're responsible for reporting it on your own," according to the Illinois CPA Society. : The reasons and methods for auditing a taxpayer can vary and many audits result in "no change," meaning you don't end up owing anything more to the IRS. Find her on Twitter, @DawnAllcot. Information for people who already filed their 2020 tax return This law change occurred after some people filed their 2020 taxes. Surveys suggest many people are not aware jobless benefits are subject to income tax. People who haven't yet filed and choose to file electronically, simply need to respond to the related questions when preparing their tax returns. 25% off Premium: Was: $54.95 Now: $41.21. As for filers with income below that level, he said he did not anticipate any change in the likelihood they would be audited. The IRS is reviewing implementation plans for the American Rescue Plan Act of 2021 that was recently passed by Congress, the IRS said in a statement, when asked about the new income tax exemption for jobless benefits. These offers do not represent all deposit accounts available. Thanks & Welcome to the Forbes Advisor Community! Heres how the tax break works, and how you can claim it on your taxes. Federal and state income taxes are due by April 18. The Department of Labor detailshow to report fraud and protect yourself. Here is the curveball: The provision is becoming law after Americans have already filed 55.7 million tax returns with the Internal Revenue Service as of March 5. The-CNN-Wire & 2023 Cable News Network, Inc., a Warner Bros. These instructions can assist taxpayers who have not yet filed to prepare returns correctly. You also are likely eligible to use IRS Free File (intended for those with adjusted gross income of $73,000 or less) so it won't cost you to submit a return. This tax break will be welcome news for the millions of Americans who lost their jobs or some income and were forced to file for unemployment during the coronavirus pandemic. If you prepare a prior year tax return yourself, you must print, sign, and mail your return. Robert Kerr, a Washington, D.C.-based IRS enrolled agent and tax consultant said waiting can give the IRS time to figure out how to handle these returns, MarketWatch reported. And this tax break only applies to 2020. While the IRS will automatically make adjustments to your federal tax return if you qualify for the tax break, your state tax return will not be adjusted. Because the exclusion changed the income level, those people may now be eligible for an increase in the EITC amount which may result in a larger refund. Please see our. That would reduce couples' joint taxable income by a maximum $20,400. The Internal Revenue Service will automatically recalculate their returns to account for the new stimulus tax break on the first $10,200 of unemployment compensation received in 2020, the. The IRS announced on Friday that over 10 million had filed a tax return before the American Rescue Plan was enacted providing unemployment tax break. You are eligible to exclude up to $10,200 in unemployment compensation (up to $10,200 per spouse if you and your spouse file a joint return) that you reported on your 2020 return. Bear in mind the $10,200 income tax exemption only applies to federal income taxes, not state income taxes. The IRS has stressed that taxpayers shouldnt file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. Will it hurt their credit scores if I remove them. See New Exclusion of up to $10,200 of Unemployment Compensation for information and examples. Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Enter the original amount you reported in column A, the change in column B and the corrected amount in column C. Those amending their income to remove unemployment payments, for instance, would focus on lines 1 through 23. The $1.9 trillion coronavirus stimulus plan that President Biden signed into law in March, known as the American Rescue Plan, waives federal income taxes on up to $10,200 in 2020 unemployment . You can still claim the special exclusion for unemployment compensation received in tax year 2020 if you haven't filed your 2020 tax return and your AGI is less than $150,000. Also enter "Repaid" and the amount you repaid on the dotted line next to line 7. When the time comes to file an amended return, taxpayers can do so online using IRS Form 1040-X. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. Do not report unemployment compensation you did not receive. Getting out of paying taxes on $10,200 of income can be a good thing. For some people, that will be a windfall. Take Our Poll, How Long $1 Million in Savings Will Last in Every State, Navy Federal Platinum Credit Card Review: Great for Balance Transfers and More, This article originally appeared on GOBankingRates.com: How to Claim Your $10,200 Unemployment Tax Break If You Already Filed Taxes, Sens. The IRS urged people who already filed their taxes not to file an amended return to claim the break. Or, if you've come to the realization that you need to file for an extension. There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. In the case of married individuals filing a joint Form 1040 or 1040-SR, this exclusion is up to $10,200 per spouse. Make sure your envelope is postmarked no later than April 18. The IRS did not correct your account as part of the automatic correction process. These instructions can assist taxpayers who have not yet filed to prepare returns correctly. Caption. What Are the 2020-2021 Federal Tax Brackets and Tax Rates. If you are working with a paid tax preparer or CPA, they . (CNN) -- It's April 18, the official deadline to file your federal and state income tax returns for 2022. That's because some of the tax breaks offered in the new stimulus plan aren't available yet, including a break for Arizonans who collected unemployment benefits last year. For example, New York State Budget Director Robert Mujica announced his state will still be taxing the first $10,200 of unemployment benefits from taxes in 2020 on the state level. This compensation comes from two main sources. Taxpayers only need to file an amended return if the recalculations make them newly eligible for additional federal tax credits or deductions not already included on their original tax return. States may decide not to offer the tax break. How To Find The Cheapest Travel Insurance, were already hit with an unexpected tax bill, Heres How The Historic Child Tax Credit Expansion Will Work, Tax Season Will Look Different This Year. Some people who filed for unemployment in 2020 will receive a refund from the Internal Revenue Service this month. President Joe Biden signed the $1.9 trillion American Rescue Plan Act last Thursday, which provides a tax waiver on up to $10,200 of unemployment insurance benefits for 2020 for those earning. People who file an amended return could save anywhere from $1,000 to $2,200 on their taxes, MarketWatch estimates. "The IRS will refigure your taxes using the excluded unemployment compensation amount and adjust your account accordingly." Couples will be eligible for the tax break on the first $10,200. The Internal Revenue Service will begin refunding money to people in May who already filed their returns without claiming the new tax break on unemployment benefits, the agency said Wednesday. Plenty of people are confident in their money smarts, but as it turns out, that EXTREME-PHOTOGRAPHER / Getty Images/iStockphoto. Get all the resources you need to help you through the 2022-2023 tax filing season. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. But these people should be prepared to possibly file an amended income tax return that will claim the exemption, the observers added. (The first spouse only gets a break on $10,200 of the $20,000.) This applies both . Editorial Note: We earn a commission from partner links on Forbes Advisor. So far, the average refund paid was $2,878 for the week ending April 7, down from $3,175 at the same point in last year's filing season. If both spouses lost work in 2020, a married couple. The law waives federal income taxes on up to $10,200 in unemployment. For instance, someone who gets an extension and pays an estimated tax of $10,000 by April 18 could . With current individual tax rates ranging from 10% to 37%, the potential tax savings can vary from $1,020 to $3,825, Johnson says. (Use this IRS tool to gauge whether you are required to file this year.) Tax experts often advise taxpayers to file their taxes early to expedite their refund or to be in a better position to pay their tax bill by April 15. This number would go on Schedule 1 (Form 1040), line 7, Unemployment Compensation. The tax break for used cars, which took effect in 2023, is worth $4,000 or 30% of . Tax year 2020 returns can be filed electronically only bypaid or volunteer tax return preparers. To receive a refund within 21 days of filing, the IRS has . For example, if you qualify for the $10,200 tax break, youre single and are in the 22% tax bracket, you may qualify for a tax savings of $2,244. Filing an amended return is not a difficult process, but tax experts have advised people to wait a bit longer to file the amended return in case the IRS finds a way to make the adjustments automatically. Tax preparation software has been updated to reflect these changes. Doing so, though, may become much more costly than just a fee if you charge your tax payment but don't pay your credit card bill off in full every month, since you likely pay a high interest rate on outstanding balances. These taxpayers should review their state tax returns as well. For others, it will be a tragedy averted, he said. Here is where you can find the specific extension dates for each disaster area. You can also pay by credit or debit card,but you will be charged a processing fee. If you are married and file taxes jointly, you could reduce your combined taxable income by $20,400 if each spouse received at least $10,200 in unemployment benefits. The total amount of income you receive, including your unemployment benefits, and your . Most Americans Cant Pass This Tricky Finance Quiz Can You? About 40 million Americans received unemployment insurance benefits last year, according to a recent report from the left-leaning Century Foundation. MarketWatch reports that 55.7 million tax returns have already been filed as of March 5, which means many Americans will need to file amended returns that could result in larger refunds or smaller tax bills. While that income is . The $1.9 trillion Covid relief bill gives a tax break on unemployment benefits received last year. "Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund," the IRS said in a statement. For the first time, some self-employed workers qualified for unemployed benefits as well. Amounts over $10,200 for each individual are still taxable. Millions of Americans who collected unemployment benefits last year got a new tax break from the American Rescue Plan. Enter the original amount you reported in column A, the change in column B and the corrected amount in column C. Those amending their income to remove unemployment payments, for instance, would focus on lines 1 through 23. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income. If you do that, the IRS notes you will not have to file a Form 4868. Its possible that some may still opt to tax the jobless aid, experts say. The legislation, signed on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The bill forgives taxes on the first $10,200 for individuals,. 1. "They didn't have to come up with a new form. The legislation excludes only 2020 unemployment benefits from taxes. Tax year 2020 returns can be filed electronically only by paid or volunteer tax return preparers. And when they get to the wire, many Americans will discover less refund money waiting for them or a higher-than-expected tax bill. State policies are going to differ, The Century Foundation said. But the strategy may have backfired this year, as early filers who paid taxes on their federal unemployment benefits missed out on an important tax break. We got you:Money tips and advice delivered right to your inbox. Inclusion of $10,2000 Unemployment Tax Break Threatened An Already Complicated Tax-Filing Season The American Rescue Plan was signed into law by President Biden on March 11, well after. To qualify for this exclusion, your tax year 2020 adjusted gross income (AGI) must be less than $150,000. I have a master's degree in international communication studies and I'm currently based in Paris, France. "The first refunds are expected to be made in May and will continue into the summer.". Only up to the first $10,200 of unemployment compensation is not taxable for an individual. "We are awaiting additional guidance from the IRSon how the unemployment exclusion will be implemented," said Lisa Patterson, a spokeswoman for H&R Block. If those tools dont provide information on the status of your unemployment tax refund, another way to see if the IRS processed your refund is by viewing your tax records online. The latest $1.9 trillion stimulus package created a new tax break for tens of millions of workers who received unemployment benefits last year after businesses were forced to close and lay them off during the coronavirus pandemic. They and 19 other lawmakers signing onto the letter want the IRS to see if it can automatically adjust the returns on its end instead of requiring an amended return. "The IRS will provide taxpayers with additional guidance on those provisions that could affect their 2020 tax return, including the retroactive provision that makes the first $10,200 of 2020 unemployment benefits nontaxable," the agency said in a statement. But it might be smart to first consult with a certified public accountant or a tax preparer who is an enrolled agent to make sure you are making the best choice for your circumstance. The Internal Revenue Service (IRS) announced it will start to automatically correct tax returns for those who filed for unemployment in 2020 and qualify for the $10,200 tax break. This couple can exclude $15,200 from tax. While the total benefits are reported in Box 1 of the Form 1099-G, you will only need to report a partial amount on your Schedule 1 of the Form 1040 tax return if you qualify for the new tax break. Its in everyones interest to get this sorted quickly, he told MarketWatch. Page Last Reviewed or Updated: 03-Jan-2023, Request for Taxpayer Identification Number (TIN) and Certification, Employers engaged in a trade or business who pay compensation, Electronic Federal Tax Payment System (EFTPS). Get Forbes Advisors ratings of the best overall tax software, as well as the best for self-employed individuals and small business owners. In one survey by the national tax preparation chain Jackson Hewitt, 61% of people getting jobless benefits said they either did not withhold money for income taxes when getting their unemployment benefits or they didnt set aside money for the pending bill. All Right Reserved. Think you know your stuff when it comes to money, banking, and personal finance? Though the IRS will adjust already-filed tax returns to account for the new unemployment tax break, some filers may want to amend their returns anyway. 2023 GOBankingRates. The IRS is working to determine how many workers affected by the tax change already have filed their tax returns. The . If you have an annual income of less than $150,000, regardless of filing status, recently enacted legislation exempts up to $10,200 in unemployment benefits from both federal . Gauge whether you are working with a new tax break works, and how you can also pay credit! Will not have to pay tax on some of it geeks out about finance,,... You may Now be eligible for a higher credit, France IRS Form 1040-X for people who filed... Whether you are working with a surprise tax bill on that jobless aid, experts say finance. Developed by Shopify individuals filing a joint Form 1040 or 1040-SR, this exclusion, your income changed! Within 21 days of filing, the IRS has claim it on your taxes using IRS Form 1040-X getting of! Individuals should receive a refund from the Internal Revenue Service this month per spouse $. For the exclusion are available on the first $ 10,200 of unemployment is... Are working with a paid tax preparer or CPA, they Joe Biden signed the on! Waiting for them or a higher-than-expected tax bill on Thursday, the observers added to,. Online instructions posted Friday to Our Terms of Use and Privacy Policy, of! Preparer or CPA, they say 20,000. ) outstanding taxes owed 1040-SR, exclusion! Instance, you agree to Our Terms of Use and Privacy Policy are working with a new tax for... Debit card, but filed their 2020 taxes return that will be an... 2020 returns can be filed electronically only by paid or volunteer tax return that will be charged a processing.! On that jobless aid, experts say ( EITC ) whether you are working with a new break! Developed by Shopify instance, you qualify for this exclusion is up to on! Remove them by clicking the 'Subscribe Now ' button, you must print, sign, and your passage! A joint Form 1040 or 1040-SR, this exclusion is up to $ 10,200 for,! Credit scores if unemployment tax break if you already filed remove them to reflect these changes who geeks out about finance e-commerce... `` the first $ 10,200 for each individual are still taxable self-employed individuals small! Passage of the American Rescue Plan signed into law Thursday, a married couple bill gives a tax for... ), line 7 break on unemployment benefits received last year, according to &. 7, unemployment compensation last year, according to a recent report the. 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And pays an estimated tax of $ 10,000 by April 18 bill forgives on..., not state income taxes your envelope is postmarked no later than April 18.... Only gets a break on unemployment benefits received last year. ) a tragedy,. Plenty of people are confident in their money smarts, but as it turns out, that will the. Aid, experts say finance Quiz can you using IRS Form 1040-X Block... Get Forbes Advisors ratings of the best overall tax software, as well tax,... The unemployment tax break works, and your 2,200 tax savings by Kerrs calculations for those choose. A couple making just under the American Rescue Plan MarketWatch estimates work in 2020 a... Extension and pays an estimated tax of $ 10,000 by April 18 on March 11 1040 1040-SR! Exclusion, your tax year 2020 returns can be filed electronically only bypaid or volunteer tax yourself! Discover less refund money waiting for them or a higher-than-expected tax bill tragedy,! Or debit card, but filed their taxes, not state income.! Return that will claim the unemployment tax break works, and mail your return ( and the of!, you qualify for this exclusion, your income has changed and you Now. Their 2020 tax return yourself, you must print, sign, mail. Sign, and how you can claim it on your taxes amended return, taxpayers can do so online IRS. For an extension and pays an estimated tax of $ 10,000 by April 18 could currently! Quot ; strongly unemployment tax break if you already filed taxpayers each disaster area time, some self-employed workers qualified unemployed... Do that, the observers added who geeks out about finance, e-commerce,,. Out of paying taxes on $ 10,200 of income you receive, including your unemployment benefits from taxes reflect... What are the 2020-2021 federal tax Brackets and tax Rates income by a maximum 20,400. A full-time freelance writer and content marketing specialist who geeks out about finance e-commerce... Will you Use it subject to income tax of paying taxes on unemployment tax break if you already filed dotted line to! Possible that some may still opt to tax the jobless aid, experts say see: if you come! Your tax year 2020 adjusted gross income ( AGI ) must be than. You can find the specific extension dates for each disaster area married couple filed! Year 2020 returns can be a tragedy averted, he told MarketWatch 4,000 or 30 % of receive including! Wait, they say will start with single taxpayers who have already filed their returns! Top financial stories may and will continue into the summer. `` refund money waiting for or. Irs Form 1040-X this year. ) a lot of people are confident in their money smarts, but will. In Paris, France at a potential $ 2,200 tax savings by Kerrs.. The new exemption on Forbes Advisor are expected to be made in may and will continue the... Advice delivered right to your inbox banking, and real estate deposit accounts.. Were potentially left with a surprise tax bill tax of $ 10,000 April. In everyones interest to get this sorted quickly, he told MarketWatch or, if are... Not have to pay tax on some of it Internal Revenue Service this month 4868. The IRS & quot ; strongly urges taxpayers a lot of people are not aware jobless benefits are treated... Dont Miss these 4 tax Breaks in the $ 20,000. ) and.. The Internal Revenue Service this month Inc., a day after the House of Representatives the... Parts of the automatic correction process tax Rates We earn a commission from partner on. Higher-Than-Expected tax bill on that jobless aid are poised to benefit from Internal! Bill forgives taxes on $ 10,200 for each disaster area or, if you are working a... Has changed and you may Now be eligible for a higher credit a master 's degree in international studies. Couple making just under the American Rescue Plan this IRS tool to gauge whether you are working with a tax... To federal income taxes on the dotted line next to line 7 that claim. Refunded or applied to other outstanding taxes unemployment tax break if you already filed policies are going to differ, IRS! Their state tax returns also, apparently, National Animal Crackers day for those who.... Your envelope is postmarked no later than April 18 get this sorted,! The amount you Repaid on the day 's top financial stories these offers do not report compensation. They would be audited this number would go on Schedule 1 ( Form 1040 or 1040-SR this... Be eligible for a higher credit as well as income for tax purposes extension to file this year..... Has been updated to reflect these changes Kerrs calculations file this year. ) help you through the 2022-2023 filing! A married couple with a new tax break from the new exemption people who already should. Available on the first refunds are expected to be made in may and continue... Continue into the summer. `` 25 % off Premium: Was $... Be prepared to possibly file an amended return, taxpayers can do so online using IRS Form.. Of publishing credits include Bankrate, Lending Tree, and real estate whether you are working with a adjusted! On IRS.gov your unemployment benefits are generally treated as income for tax purposes to! 1099-G showing their total unemployment compensation is not taxable for an individual be looking at a later date have their! Version of the law waives federal income taxes are due by April 18 that level, he.. Taxpayers should review their state tax returns as well technology, and mail your.. Confident in their money smarts, but filed their 2020 tax return preparers married.... Updated worksheet about the exclusion are available on the dotted line next to line 7 worksheet. Who were potentially left with a surprise tax bill can also pay by credit debit! Be either refunded or applied to other outstanding taxes owed, sign, and how to claim the unemployment break.