Here’s how the virus aid bill may change your 2020 taxes

$1,400 payments may send accountants and early filers scrambling

The Senate passed a $1.9 trillion COVID-19 relief package Saturday and officials expect it to head to President Joe Biden’s desk this week, pending one more successful vote in the House.

The bill includes $1,400 payments to most Americans, targeted aid to the restaurant, child care and airline industries, funding for vaccines and testing, aid to small businesses, and support for state and local governments.

However, it might also include a measure that could send accountants and early income tax filers scrambling.

Under the bill, those with an annual income under $150,000 will not be required to pay taxes on up to $10,200 of unemployment benefits received last year.

And that’s a big deal, as many tax experts and financial officials have warned that some Americans didn’t know they would need to pay taxes on unemployment benefits received during widespread shutdowns that started last spring.

A survey published in September from tax preparation service Jackson Hewitt showed that 37% of participants thought unemployment benefits are not taxable.

But, the benefits are subject to federal (and, in some cases, state) taxes, like any other income.

The survey also showed that many didn’t know they needed to request taxes be withheld from their unemployment benefits.

Of those who received benefits, 61% said they didn’t withhold for income taxes or earmark money from those benefits for taxes, according to the survey.

The IRS in August released guidance about tax withholdings for unemployment benefits, as millions of Americans were receiving them for the first time and so they could “avoid a tax-time surprise.”

If the measure to waive taxes on the first $10,200 of income becomes law, early filers might need to go through the process of an amended return.

The House still needs to pass the Senate’s version of the bill before it lands on Biden’s desk. Their vote is expected Tuesday, so if you haven’t filed your taxes yet, hold off. Accountants and tax preparation companies will need to make changes to reflect the waiver on unemployment income. There’s no timeline for when those using software from companies like Turbo Tax or H&R Block will see such changes reflected.

According to MarketWatch, accountants are calling for a tax deadline extension beyond the April 15 filing deadline, but there’s no word if an extension will be announced.